Permal Group, one of the world's oldest and largest hedge funds of funds, wants to increase its exposure to yuan-denominated assets as investors' interest in China rises in response to economic stress in Europe and the US, a fund official said.
"There will be a growing appetite" for Chinese equities and yuan-denominated assets, Isaac Souede, chief executive officer of the New-York based company that manages about $20 billion in assets, said on Thursday in Beijing.
"From a strategy point of view, it is a good thing for foreign investors who want to diversify away from the dollar or euro," he said.
Permal launched the first yuan-based share class for its hedge funds in September. With China's inflation under control and the economy appearing to be headed in the right direction, investors are keen to increase exposure to yuan-denominated assets, he said.
"The pace of the yuan's appreciation will probably slow for the next six months because of the incredible uncertainty of the world. But I think it will resume thereafter," Souede said.
He forecast the yuan would appreciate another 30 percent in the next five to six years.
"Foreign investors tend to see the Chinese currency as a long-term, less risky and stable way to invest in China as opposed to equities and bonds, which are much more volatile," said Mathew Yao, Permal's vice-president for Greater China.
"The yuan share class could also serve our Chinese clients' need to hedge the risks of the appreciation of the yuan against the dollar," Yao added.
Souede said that the major threat to China's economy is external, with conditions in Europe a concern for global investors.
"Europe is doing things slowly and incrementally, which is making the market challenging," he said.
With market uncertainty and volatility likely to remain high, Souede said that Permal has shifted toward a more flexible and macro-level investment strategy to take advantage of the volatility.
"In 25 years of doing what I do, I've never seen politics and policy matter as much as they do today, compared with fundamentals," he said.
He said that investment opportunities might emerge in European distressed debt, as many banks are going to deleverage and sell assets at a reasonable price.
"There are also some good companies in Europe that are being punished because they happened to be listed in Europe, but their businesses are in fact internationally driven," he added.
Souede said he's pleased with Permal's $200 million China Strategy Fund, which has had a flat performance while the overall market has fallen about 15 percent.