China’s wealthy investors turn to ‘sunshine’ trusts

Wealthy Chinese investors are turning to “sunshine” private trusts, the prototypes of hedge funds in the communist nation.

This is while property market cools, stocks slump and bank-deposit rates fail to match inflation.

China’s private trust-fund assets tripled to 138.3 billion yuan or $22 billion in the 18 months to Sept. 30, according to the most recent data from the China Trustee Association, while global hedge-fund assets have stalled at around $2 trillion.

The sunshine funds are exempt from some rules placed on Chinese mutual funds, even as limitations such as a ban on short selling means they can’t operate as hedge funds in the same way managers in Hong Kong, London and New York can.

The Rongzhi Hedge Fund Index that tracks 938 sunshine private funds almost doubled from the end of 2006 to December 2011, beating the CSI Stock Fund Index, which includes all Chinese open-ended stock mutual funds, by 47 percentage points. China’s mutual-fund industry shrunk about 35 percent from the end of 2007 to 2.1 trillion yuan in September as the Shanghai Composite Index tumbled almost 60 percent from its 2007 peak.

The Rongzhi gauge dropped 18 percent last year, outperforming the CSI Equity Fund Index by 7 percentage points. The Shanghai Composite retreated 22 percent.

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