HK regulator to lure funds, raise salaries
HONG KONG (Reuters) - Hong Kong's Securities and Futures Commission (SFC) is trying to lure more hedge fund managers, and it's raising salaries to prevent staff from leaving for the industry it regulates.
The regulator is trying to process applications from aspiring hedge fund managers as quickly as it "sensibly" can, but current quality requirements must be maintained, the regulator's chief executive, Martin Wheatley, told the Reuters Wealth Management Summit.
"We try to be effective in our approach. But what we won't do is compromise those standards, reduce those standards to the lowest common denominator just to try to win short-term business," Wheatley said.
"We're comfortable that our approach is right and that Hong Kong is attractive enough that people will want to come and set up here and go through our scrutiny process."
Hong Kong was home to more hedge fund assets than any other Asian city at the end of last year, with $12.1 billion managed from the territory, compared with $5.1 billion in Singapore, according to research firm Eurekahedge.
But managers at a hedge fund conference in Hong Kong last month said Singapore's appeal as a home base relative to Hong Kong has grown in the past two years. They found Singapore's regulatory regime faster and easier to deal with.
Wheatley said hedge fund applications were coming in at a higher-than-normal rate, but the regulator aims to turn around applications within 15 weeks and give approval in principle much sooner.
Like many private sector financial firms, the regulator has been hit with high turnover as staff leave for higher-paying jobs elsewhere, he said. Wheatley said he will try to address the problem when the regulator meets Hong Kong legislators in 2007 to set its budget.
"We will be going next year with a clear recognition of the retention problems that we have," he said. "So we will be looking for some additional budget in terms of staff retention, which obviously comes down to salary."
Wheatley, who spent 18 years at the London Stock Exchange and served as its deputy chief executive, said it was too soon to say whether policy would change as a result of the unraveling of Amaranth Advisors LLC.
The Greenwich, Connecticut-based firm became the latest hedge fund manager to hit the headlines after it suffered a $6 billion loss last month in wrong-way bets on natural gas derivatives.
"We have to see the full picture before we can really say whether this has significant policy implications, or whether this is simply a feature of hedge funds, which is that they are by nature riskier investments," he said.
The Hong Kong regulator's approach is to try not to constrain the way that hedge funds operate and leave it to large, sophisticated investors to decide whether they want to take on that risk, Wheatley said.
Hong Kong allows individuals with less than US$1 million in assets to invest in hedge funds, but it must license the products first and sets a US$50,000 minimum on investment.
The regulator is more concerned about ensuring that a hedge fund in trouble would not pose a risk to the financial system. Wheatley noted this was the major concern with the collapse of U.S.-based Long Term Capital Management, which sent shudders through the world financial system in 1998.
"A lot of people learned a lot from that," he said. "The prime brokers, the people who offer services to those funds, have become more disciplined."
