In many countries, moving out of a big fund house to set up a hedge fund is now a normal career path for a successful mutual fund manager. But in China, the path to such entrepreneurial opportunities is not quite so obvious. Similarly, Chinese mainlanders who were educated and cut their hedge fund management teeth in the world's major financial centres don't find it quite so easy to set up a hedge fund back home.

Under regulation by the China Securities Regulatory Commission (CSRC), mutual funds must maintain a high investment level in equities, which limits ability to go to cash; short-selling is forbidden and derivatives are in their infancy in mainland China. However markets, like nature, abhor a vacuum. And despite the obstacles to setting up hedge funds, the demand for alternative investment has been met with a proliferation of private funds with an absolute return mandate and a...