True Partner Capital expects an “extremely contested” US presidential election outcome in November to spark market volatility, benefiting investors who focused two-way swings in global equity prices.
The fund manager, which has applied for a listing on the smaller GEM board in Hong Kong, said this could also potentially set off a second wave of choppy trading in Hong Kong and China since the March sell-off caused by the coronavirus pandemic.
“Depending on who would be the next president, the isolationist policies under the current Trump administration could change,” Tobias Hekster, co-chief investment officer based in Chicago, said in a phone interview. “Any uncertainties about the future shape of US-China relations could drive volatilities in global equity markets.”
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The US election has taken a new twist since US president Donald Trump was infected by the virus, on top of uncertainty regarding the mail-in voting system that is being used this year. Mail-in ballots are expected to take longer to count and Trump has already questioned its reliability. Trump, coming out from his treatment, said he was ending talks with Democratic leaders on a new economic stimulus package, roiling markets.
In the March sell-off, the Hang Seng’s 30-day volatility index surged to 64.8 on March 16, the highest since the gauge was introduced in 2011. The Chicago Board Options Exchange’s VIX, the volatility gauge of the S&P 500 index, also rose to a multi-year high on that day.
True Partner Capital is seeking to raise up to HK$195 million (US$25.2 million) through an initial public offering that will close on Friday. It is selling 100 million shares, at HK$1.55 to HK$1.95 each in the IPO, with the proceeds intended for hiring and upgrading its technology. The stock is expected to start trading on October 16.
True Partner Capital, a team of 26 former market makers and IT specialists in Hong Kong, Chicago and Amsterdam, expects to grow its current US$1.6 billion of assets under management as more investors learn about its strategy. The hedge fund employs a global volatility strategy, seeking to profit from the buying and selling of exchange-listed options.
Option trading strategies account for just 1 per cent of the US$3.2 trillion global hedge fund industry in 2019, according to its prospectus.
Hong Kong is the key to unlock China’s stocks, where global funds may in time own 25 per cent of market value
Subdued volatility could be the hedge fund manager’s worst enemy. Some of True Partner Capital’s funds lost 7.5 per cent to 12 per cent last year, causing the firm to incur a net loss of HK$21.1 million for the full year of 2019 versus a HK$85 million profit a year earlier.
A GEM listing would also help the manager’s expansion in China, said chief executive officer Ralph van Put, who is based on Hong Kong. The mainland market will be increasingly attractive to foreign investors when new rules that allow foreign investors to trade exchange-listed financial and commodity futures, and options come into effect in November.
The hedge fund manager is working with Shanghai-listed brokerage Nanhua Futures and Zhejiang-based Holland & Muh Investment Management in launching a new China volatility fund. The product is expected to be unveiled in the second half next year.
True Partner Capital manages US$1.6 billion across three funds and other managed accounts. This puts it behind New York-based Capstone Investment, which manages about US$7.6 billion, and San Francisco-based Parallax Volatility Advisors, which oversees about US$2.7 billion.
“In two years’ time, we aspire to grow our business scale similar to other larger players in the volatility strategy space, such as Capstone in the US,” van Put said. “In the near future, we also target to migrate our GEM listing to the Hong Kong main board.”
More from South China Morning Post:
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