How Hong Kong protests affect the big money

Hedge funds and other big money managers in Hong Kong aren't in panic mode over the democracy protests sweeping the city.

Those with local offices, such as hedge fund firms Och-Ziff Capital Management Group, TT International and private equity shop Blackstone Group, are operating as usual, according to people familiar with the situation.

The most tangible effect on financial firms has been a challenging commute, with virtually no cars, buses or taxis flowing in Central, the skyscraper-studded business neighborhood that has been the focal point of the protests. But the subway is running, so most employees have been able to get to work. Some in the financial industry have even mingled with nearby protesters and in one case cooked them sausages.

"So far, getting to work is a bit more of a hassle—lots of police about—but feels pretty much business as usual," said one investment firm employee in the city who asked not to be identified.

The protests—formally called "Occupy Central with Love and Peace" and focused on allowing democratic elections without Chinese influence—have been noticeably calm despite some police use of tear gas on students. Participants even cleaned up their own trash on Tuesday and some refer inoffensively to the effort as the "Umbrella Revolution" because of the recent rain.

Aerial view of a rally on a street outside of Hong Kong Government Complex on September 30. Thousands of pro democracy supporters continue to occupy the streets surrounding Hong Kong's Financial district. Protest leaders have set an October 1st deadline for their demands to be met and are calling for open elections and the resignation of Hong Kong's Chief Executive Leung Chun-ying.
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Aerial view of a rally on a street outside of Hong Kong Government Complex on September 30. Thousands of pro democracy supporters continue to occupy the streets surrounding Hong Kong's Financial district. Protest leaders have set an October 1st deadline for their demands to be met and are calling for open elections and the resignation of Hong Kong's Chief Executive Leung Chun-ying.

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While operations have been mostly normal, the city's financial firms are tracking it closely and are prepared for an escalation with the size of the movement expected to surge Wednesday and Thursday, China's National Day holiday.

Some, like Maso Capital and Keywise Capital Management, sent notes to clients Monday reassuring them they were operating as usual but were actively monitoring the situation. Others, like BlackRock and local hedge funds, allowed employees to work from home even if their offices remained open, according to those with knowledge of the situation.

Banks were more affected: A total of 44 branches, offices or ATMs of 23 banks, such as HSBC and Standard Chartered, were temporarily closed, as of late afternoon Tuesday local time, according to the Hong Kong Monetary Authority.

The effects on markets appear to be mixed.

The employee of one major bank said that more hedge fund clients were betting against Hong Kong-listed stocks, particularly in the property and retail sectors. But SunGard Securities Finance, which also tracks short interest, said it had not seen a pickup in activity.

"Given what I am seeing here, it would suggest short sellers are not overly worried by these protests at the moment," said Karl Loomes, a SunGard analyst.

The protests may have weighed on stocks, but there had been pressure before the protests, too, from worries over a Chinese economic slowdown.

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"We anticipate that the 'Occupy Central' movement will bring short-term fluctuation to Hong Kong financial markets, especially to the sectors related to retail, tourism and property," hedge funder Fang Zheng of Keywise said in an email Monday to clients.

Some in the financial community—many of them expatriates or educated in the U.S. or Europe—sympathize with the calls for democratic reform.

"The expat financial community in Hong Kong sympathizes with locals. ... Most of us come from democratic countries," said an employee of a major bank with offices in the city. "While we sympathize, we do not protest with them. Openly protesting for any cause is not an accepted norm in Hong Kong, and the longer the protests go, the more the local community will split between idealists and people just wanting to get back to their lives."

At least one in the hedge fund community has been highly public about his support. Edward Chin, who runs family office and hedge fund consulting firm MDE in Hong Kong, has taken part in the protests and leads the Occupy movement's "Finance and banking group." The group has paid for ads in The Wall Street Journal and The New York Times promoting the protest.

"The message is clear," he said in an email to CNBC.com on Tuesday, "Hong Kong people want true democracy."

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