An investment offering that most of the world has shunned is suddenly all the rage in China, and money managers from UBS Group AG to SkyBridge Capital are moving to grab a slice of the bounty.

Funds of hedge funds, which allocate client money across multiple managers, are opening at a record pace in Asia’s largest economy even as their numbers dwindle globally after 10 straight years of outflows. While investors in the U.S. and Europe have grown disillusioned with the funds’ fees and spotty performance, China’s rich are looking past those concerns as they hunt for alternatives to increasingly risky domestic asset-management products.

The country hosted more than 100 fund-of-funds launches in the first five months of 2018, according to Shanghai Suntime Information Technology Co., and UBS is among firms with offerings in the works. SkyBridge, which specializes in multi-layered products, is hoping to attract as much as $1 billion from China as part of a plan to double client assets to $20 billion in five years.

“Believe it or not, fund of funds is actually a pretty hot product in China,” Anthony Scaramucci, who founded SkyBridge and recently returned to the firm after a 10-day stint last year as White House communications director, said in an interview on Bloomberg Television.

China is expected to mint four times as many millionaires as the U.S. over the next five years. And while much of that wealth has flowed into asset-management products with implicit guarantees, China’s government said late last year that investors can no longer count on getting bailed out when the investments go south. That’s spurring demand for substitutes like funds of funds that advertise steady, if unspectacular, returns.

“The supply of high-quality fixed-income or quasi-fixed-income products is shrinking against the backdrop of implicit guarantees being broken, and a lot of clients who are used to such investments now need a new direction,” said Liu Haiying, chief executive officer of Shanghai Suntime’s asset-management unit.

HNA Alliance

SkyBridge is planning to develop and sell products in China and Hong Kong jointly with Chinese conglomerate HNA Group Co., including a yuan-denominated offering for onshore investors, according to Scaramucci. He said SkyBridge is working to secure distribution and asset management licenses in China and wants to develop at least one product by January. His goal is to lure between $500 million and $1 billion from the country in five years.

UBS hasn’t disclosed details of its planned fund of funds offering, but the Swiss bank said in a reply to questions that it’s part of a broader product plan for China’s newly opened asset-management market.

Global managers will face stiff competition in China. Citic Securities Co. raised almost 8 billion yuan ($1.2 billion) in March for its largest-ever fund of hedge funds, followed by similar products from Guotai Junan Securities Co. and China Merchants Securities Co. Shanghai Suntime’s asset-management unit is planning to double the assets in its offerings to 2 billion yuan later this year.

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