Chinese fund management firm Harvest has launched the country’s fourth capital-guaranteed fund in conjunction with Shanghai Pudong Development Bank and SG, the investment banking arm of French bank Société Générale. The fund, launched last month, is the first to involve a domestic and international bank as guarantor and counter-guarantor.
Harvest Fund Management will use constant proportion portfolio insurance (CPPI) techniques to provide the guarantee and generate potential additional returns for Chinese investors. However, in a significant change from the guaranteed funds launched to date, a local bank, Shanghai Pudong Development Bank, will act as guarantor, while SG will be the counter-guarantor and monitoring agent. The other three funds launched in mainland China were all guaranteed by Chinese state-owned enterprises or trust companies.
“One of the attractions of the product is that you have Harvest as the manager and you have a local bank involved as guarantor for the first time, whereas all the other CPPI funds used non-banks as guarantor, such as a corporate or conglomerate,” says Raphael Blot, managing director, equity derivatives and structured products, at SG in Hong Kong.
As monitoring agent, SG is responsible for providing technical assistance on the CPPI trading strategy, conducting due diligence on the procedures of Harvest, and analysing the limits and risks of the fund manager. However, SG will not be involved in the selection or trading of the underlying stocks and bonds, Blot says.
“We have agreed on the investment strategy the fund will have, and we feel comfortable that if the manager implements this strategy, the fund will be guaranteed at maturity,” he adds. “As monitoring agents, we will monitor on a daily basis to make sure the policy we agreed is actively put in place, but we are not involved in the day-to-day management of the fund – that is, stock and bond selection and buy and sell decisions.”
Harvest Fund Management follows on the heels of Tiantong Asset Management, which launched a three-year principal-guaranteed fund in August guaranteed by the State Development and Investment Corporation, the Chinese government’s investment arm.