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Chinese private fund assets hit a staggering $1.63 trillion

  • Assets under management of Chinese private funds rose 28 percent over the first 10 months of the year, to 10.77 trillion yuan ($1.63 trillion), according to the Asset Management Association of China.
  • Interest in private funds is rising as the number of China's high-net-worth individuals increasingly look to professional money managers, according to a Bain report.
  • The number of private Chinese funds has climbed to about 21,000. About 8,000 of those are hedge funds that invest in securities, according to local consultancy Z-Ben Advisors.
Kevin Frayer | Getty Images News | Getty Images

China's private fund industry is growing rapidly as the country's wealthy increasingly turn toward money managers.

Assets under management of Chinese private funds rose 28 percent over the first 10 months of the year, to 10.77 trillion yuan ($1.63 trillion), according to a Nov. 10 report, the latest, from the Asset Management Association of China.

The funds target high-net-worth individuals, a group that has grown rapidly in China. The number of Chinese with at least 10 million yuan (roughly $1.5 million) in investible assets has multiplied more than eight times within a decade, to 1.6 million in 2016, according to Bain's report on China Private Wealth, released in August.

"Collectively, China's HNWIs have about RMB 49 trillion (about $7 trillion) in investable assets, and they have grown more discerning about how, and with whom, they invest that money," the report said. The first generation to benefit from China's capitalist turn have tended to manage their money independently. In contrast, "newer HNWIs — who often include the sons and daughters of first-generation company founders — are more willing to seek professional advice."

As investors recover from the shock of China's 2015 market crash, the number of private Chinese funds has grown nearly 20 percent this year, to 21,628, according to the Asset Management Association of China. About 8,000 of those fall into the "hedge fund" category of investing in securities, according to local consultancy Z-Ben Advisors.

"There is increased interest, increased opportunity," said Chantal Grinderslev, senior advisor and director of operations at Z-Ben Advisors. "If anything it's the secret blessing of the block on outflows. It's really spurring interest onshore from investments onshore. "

When it comes to the kinds of funds China's wealthy are pursuing, private equity and venture capital funds have seen much of the growth in the last year, Grinderslev said. According to Z-Ben, assets under management for securities-focused Chinese private funds has fallen from nearly $400 billion at the end of last year to $340 billion this fall.

China's hedge fund industry also remains small by global standards. Global hedge fund research firm Preqin only tracks 117 "pure hedge funds" based in China.

But the growth trend remains. Preqin said the 117 funds is double that of 2014.

"With the introduction of shortselling of China equity markets and favorable regulation being released over recent years, Preqin expects to see the number of funds launching within China continue to increase in the coming years," Ross Ford, head of hedge funds and real assets research at Preqin, said in an email to CNBC.

Interest in securities investing is also high. Of more than 15,000 investment products launched last year, 80 percent focused on fixed income or equity, according to Z-Ben.

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A major factor in the growth of China's funds this year is the strong performance in some of the local markets. The Hang Seng is up 28 percent this year and China's CSI 300 is up 21 percent.

Funds are capturing those gains. The HFRI Emerging Markets: China index is up 28 percent this year through October, the best performer among the HFRI indexes and more than twice the HFRI Equity Hedge (Total) Index's nearly 11 percent gain.

"Most Chinese hedge funds are focusing on the unique trading opportunities in mainland markets," Ken Heinz, president of HFR, said in an email to CNBC. However, Heinz said some funds were looking for overseas arbitrage opportunities.

The next step for many Chinese funds is expanding into foreign markets, several analysts said.

The industry is still in the early stages of expanding overseas, "but private funds in China are on the precipice of moving into global investment on behalf of their clients," Grinderslev said.

Historically, more than two-thirds of China-based funds focused on the Greater China region. But Preqin's Ford said 79 percent of new China-based fund launches in 2016 had a global focus.

Some funds are also trying to emulate their Western peers. Hedge fund giant Bridgewater Associates is planning to launch a version of its All Weather fund in China. A "Congrong Allweather Fund" from Shanghai Congrong Investment Management already exists. It rose 37 percent in roughly the first 10 months of the year, according to Z-Ben.

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