Hedge Fund

Member list Lam, Ho-kei Jan 023011 Ng, Lok-hang Jessica 033125 Chan, Ka-po Kate 033139 Lee, Tak-ming Alvin 033228 Wong, Wing-yin Winnie 034025 Kwan, Cheuk-shing Elvis 035052

History of Hedge Fund

Hedge trying to offset possible losses begin in 1949 by Alfred Winslow Jones his strategy posted on “Fortune” short selling and leverage 1952 A.W. Jones & Co First Hedge Fund continuous profit combination of shared risk to ensure goals father of hedge fund

History of Hedge Fund

Fail & success, quiet & hot over 2 decades

Late 1990s Great development & grow rapidly

Currently, over 6,000 exist in industry size at $1 trillion

History of Hedge Fund (con’t)

Hedge Funds in Hong Kong History of hedge funds relatively short in Hong Kong

Intended for sale to public to be authorized by SFC comply with hedge funds guidelines issued by

SFC in 2002

First three authorized funds First quarter of 2003 2 single hedge funds & 1 FHF

Figures from AisaHedge first half of 2005 new hedge funds about US $3.5 billions establish

ed in Asia 1/3 were entered Hong Kong

Hedge Funds in Hong Kong (con’t)

Retail Hedge Fund in Hong Kong

History 5/2002 SFC released conclusion of consultation on offering of

hedge fund to HK publicSFC issued long-awaited guidelines permitting offering hedge funds sale to HK public

11/2002 SFC also released the Guidelines on Hedge Funds Reporting Requirements SFC announced authorization of the first 3 hedge funds

2006 13 authorized retail hedge funds

Matt Dillon is the 13th one

First Retail Hedge Fund Approved by the Special Administrative Re

gion’s regulator SFC

Offer to public beyond Professionals

fund manager, divisions of banks, insurance companies &certain pension fund

Private Placement

limited number of persons

Changes in Regulations Allow fund managers to single strategy hed

ge funds, FoHFs & capital-guaranteed hedge funds to retail investors

Minimum subscriptions $50,000 for single strategy fund $10,000 for FoHFs

First Retail Hedge Fund (con’t) Authorization of first 3 hedge funds on 28/1

1/2002

2 single strategy hedge funds JF Asia Absolute Return Fund JF Greater China Absolute Return Fund

one FoHFs HSBC Global Strategy Hedge Fund

Regulation of Hedge Funds in Hong Kong

Regulation Authorization regime govern by SFC

Get authorization before selling in the market Specific requirements on fund managers Minimum purchase amount

Fund manager 4 additional requirements

Assets under management (AUM) Risk management profile Internal control system Information disclosure

Fund manager (con’t) Professional expertise

5-year general experience 2-year experience in specific hedge fund

strategy

Amount of assets under management

At least US$100 million

Fund manager (con’t)

Risk management and internal control system

1. Consider business nature

2. Consider business risk

3. Set up risk management process

4. Monitor the model

Fund manager (con’t)

Appointments of representatives and agents agents involved in the daily operation

e.g. administrators, custodians, prime brokers Sufficient know-how in their own areas

Provide adequate information and training to their selling agents

Fund manager (con’t)

Regulatory Parameters

Regulatory Parameters If any company has not complies with the various

requirements, then: liable for a fine of up to HK$100,000

If it incurred for matters (e.g.: prospectus containing an untrue statement ) Additional penalties (fines of up to HK$500,000

and imprisonment for up to three years)

Regulatory Parameters (con’t) Prospectus included:

any prospectus, notice, circular, brochure, advertisement, or other document

offering any shares or debentures of a company to the public

calculated to invite offers

offering any shares or debentures of a company to the public

Offer to 'The Public' There is an exemption:

exempt from the requirement to prepare and register a prospectus

It is necessary that: He offer is either not made to 'the public' ,or; The offer falls within one of the available

statutory exemptions

Offer to 'The Public‘ (con’t) Two available exemptions:

Professionals only

Private placement

Six types of Hedge Funds in Hong Kong

Six Types of Hedge Fund in Hong Kong HSBC Global Strategy Hedge-USD JF Asia Absolute Return-Notional Class AJF Greater China Absolute Return-0301 JF Japan Absolute Return-0308 JF Korea Absolute Return-0309 Man Hedge Diversified Ltd

HSBC Global Strategy Hedge Fund 匯豐環球策略對沖基金

NAV (2006-03-31) 12.499 Total Net Assets 17,960 (in thousand)

Fund performance

Annual Returns (%, USD) Growth of $10,000

2004 gain 5.16% 2005gain 8.73% Now gain 4.24%

Fund fact Minimum Purchase(USD ) Initial Investment

10,000

Additional 1,000

Fund fact(con’t) Annual Expense Mgt & Distribution Fee

1.65% Sales Fees Initial

5.25% Deferred

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JF Asia Absolute Return JF 亞洲先鋒基金

NAV (2006-04-21) 44.0127

Total Net Assets(000's) 85,300

How has this fund performed?

Annual Returns (%, USD) Growth of $10,000

2003 27.5% 2004 -4.13% 2005 -1.67% Now 17.93%

Fund fact Minimum Purchase(USD ) Initial Investment

50,000 Annual Expense Mgt & Distribution Fee

1.00% Sales Fees Initial

5.00%

JF Japan Absolute Return JF 日本先鋒基金

NAV (2006-04-21) 17589.9200

Total Net Assets(000's) 44,905,300

How has this fund performed? Annual Returns (%, USD) Growth of

$10,000 2004 23.86% 2005 7.13% Now -1.62%

Fund Fact Annual Expense Mgt & Distribution Fee

1.00% Sales Fees Initial

5.00% Deferred

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Case Study 1HSBC Global Strategy Hedge Fund

a fund of hedge funds a diversified portfolio made up of equity

long/short hedge funds

What does this fund own? Cash 3.5% Stock 0% Bond 0% Others 96.5%

HSBC Global Strategy Hedge Fund (Con’t)

Inception Date:2003-02-28 Manager Name: Team Managed Fund Advisor: HSBC Republic Investment Li

mited

Fund performance Annual Returns (%, USD) Growth of $10,000

2004 gain 5.16% 2005gain 8.73% Now gain 4.24%

HSBC Global Strategy Hedge Fund (con’t)

Fund: HSBC Global Strategy Hedge Fund – USD

Benchmark: --- Total Return

How risky is this fund ? Worst Quarter Return2.54% Number of Funds in Category: 5 diversify ris

ks

Case Study 2JF Asia Absolute Return - Notional Class A

Aggressively managed portfolio of equities, bonds and currencies, and derivatives of any of these

Investing primarily in the Asia-Pacific region (including Japan)

JF Asia Absolute Return - Notional Class A(Con’t)

Inception Date:1998-10-30 Manager Name: Victor Lee Mgr Start Date: 2005-07-18

How has this fund performed?

Annual Returns (%, USD) Growth of $10,000

2003 27.5% 2004 -4.13% 2005 -1.67% Now 17.93%

JF Asia Absolute Return - Notional Class A (Con’t)

Fund: HSBC Global Strategy Hedge Fund – USD

Benchmark: --- Total Return

How risky is this fund ?

Worst Quarter Return 12.34% Number of Funds in Category: 5

Risk Profile(3-year standard Deviation)