“…Lu Jun, former chief investment officer of JPMorgan’s China fund venture, has raised 300 million yuan ($43 million) for his fund targeting the domestic stock market, which he believes has bottomed barring another spike in inflation…”

By Charlie Zhu
Source: Reuters

Lu Jun, former chief investment officer of JPMorgan’s China fund venture, has raised 300 million yuan ($43 million) for his fund targeting the domestic stock market, which he believes has bottomed barring another spike in inflation.

It is the latest in a series of products launched by Chinese “private investment funds”, which play the same role as hedge funds do abroad — investing big sums of money for wealthy clients.

The fund, launched in partnership with China’s Ping An Trust and Investment Co, raised the proceeds in two tranches this month from about 80 clients whose minimum subscription was set at 3 million yuan ($429,300), Lu told Reuters.

Lu’s firm, Congrong Capital Investment Management, acts as an adviser for the funds and will share fees with Ping An Trust — which will charge holders of the funds an annual management fee of 2 percent and a performance fee of 20 percent, he said by phone.

Under the existing rules, privately owned investment companies in China such as Congrong are barred from issuing shares by themselves to create pools of investor money — forcing them to team up with local trust firms.

Despite official curbs on private investment funds, the sector has grown, by some estimates, to several hundreds of billions of yuan, luring a spate of senior fund managers from China’s fast-growing mutual fund sector.

The Chinese funds are still dwarfed by Western hedge funds, but China’s economic boom, financial liberalisation and its growing ranks of dollar millionaires could eventually make them just as influential, analysts say.

Lu, who resigned from JPMorgan’s (JPM.N: Quote, Profile, Research) China fund venture last August and was widely known in the country’s fund sector for his stock-picking skills and aggressive trading style, said the A-share market may have bottomed out unless China’s inflation worsens.

“The domestic economic growth remains strong. If inflation can be controlled, the A-share market’s current valuation is still reasonable, thanks to the recent deep correction,” said Lu.

“What worries me most is still inflation,” said Lu, whose funds can invest in all products listed on China’s stock exchanges, including bonds, closed-end funds and stock warrants.

Fears of inflation, which surged to an annual rate of 8.0 percent in the first quarter, as well as excessive new share supply and fears of an economic slowdown as a result of the U.S. subprime crisis, have driven A-share prices down sharply.

The benchmark Shanghai composite index .SSEC lost 34 percent in the first quarter before staging a rebound this month due to government steps to boost stock prices, including a cut in stock trade tax.

But the index is still 42 percent below its all-time high hit in mid October. A-share listed firms are trading at 27 times their 2007 profits and about 17 times their 2008 earnings.

Lu said his two funds have reaped a return of five percent and two percent since inception, adding that he favours the agricultural, new energy, machinery and financial sectors.