Risk-parity managers have been planting their flags in China this year, and some observers expect volatility-battered investors on the mainland to prove receptive to the strategy's promise of steady, superior risk-adjusted returns.
On July 7, Boston-based PanAgora Asset Management Inc. announced a risk-parity-focused strategic tie-up with China Asset Management Co., a top fund management company in China with 526.6 billion renminbi ($78.7 billion) in assets under management.
Under the partnership, China Asset Management began offering a Chinese risk-parity strategy —built on PanAgora's research and investment approach — to local institutional and retail investors earlier this month, with plans to follow it up with a broader suite of products.
The same day, AQR Capital Management LLC — a Greenwich, Conn.-based manager of hedge funds, quantitative long-only equity and risk-parity strategies — won regulatory approval to set up an office in Hong Kong.
In May, meanwhile, news emerged that China's regulators had granted a license to Bridgewater Associates LP, the Westport, Conn.-based money manager that pioneered risk parity, to set up a wholly foreign-owned investment arm in China.
A spokesman for Bridgewater declined to discuss the company's plans.
In a July 11 telephone interview, Jesse Huang, a Boston-based director of strategic relations with PanAgora and leader of the firm's business efforts in Asia, said “now is the right time” — after the Chinese stock market's violent gyrations of the past 18 months — to introduce an approach offering local investors less volatility and higher risk-adjusted returns.
PanAgora, which manages a quarter of its $40 billion in hedge fund, long-only equity and risk-parity AUM on behalf of Asia-Pacific clients, began studying its China options a year ago, and quickly focused on China Asset Management as a strategic partner, Mr. Huang said.
The fact that PanAgora's majority stakeholder, Montreal-based Power Financial Corp., acquired a 10% stake in China Asset Management in 2011 helped bring the two firms to the table, but they only moved ahead with a partnership after both sides considered a range of options, he said.
China Asset Management announced its tie-up with PanAgora in Beijing to an audience of roughly 350 local institutional investors.
Mr. Huang predicted broad potential interest from Chinese insurance companies, corporate “enterprise annuities” retirement plans, other big pension and sovereign wealth funds as well as high-net-worth individuals.
Some analysts concur.
Risk parity “will attract institutional interest,” led by banks — which have seen returns from a pure fixed-income portfolio drop below 3% from around 5% a few years ago — but also big public pension plans, sovereign wealth funds and enterprise annuities, among others, predicted Ivan Shi, Shanghai-based director of research with financial markets consulting firm Z-Ben Advisors.
However, some observers said local insurance companies might still have to clear regulatory hurdles governing their exposure to leverage or derivatives before making allocations to risk-parity strategies.
Mr. Huang pointed to China Asset Management's knowledge of local markets and regulations as a means of working through such issues in structuring the firms' risk-parity offerings.
Executives at China Asset Management couldn't be reached for comment.