China Exposure Yes; Public Markets No.

"I choose the likely man in preference to the rich man; I want a man without money rather than money without a man."

Themistocles, 527 BC - 460 BC, from Plutarch, Lives

Interestingly, many investors continue to ignore the data and facts when investing in China. Like in any emerging market one is often best served in buying the MSCI Emerging Market Index rather than adopting a single country focus. For equities, it is often the case that the long/short equity emerging market manager (with a single country focus) has a very high correlation to the MSCI EM Index but at a significantly higher cost and more risk (as it is by definition not as diversified).

So what should the discerning global investor be looking at when emphasizing exposure to China? First, this is often best done through a fund that has a combination of access to "hot" issues (IPOs), illiquid PIPEs and other illiquid deals. This is typically where real wealth is created in nascent economies and where the value is originated. Of course there are issues such as transparency, independent inventory valuations, and the dubious rule of law when there are disputes.

A second way to get exposure to China is through the private equity/venture capital route often via the U.S. There a number of companies that are situated in the U.S. that focus on the China opportunity and that offer exposure to that part of the world. In recent months the big names such as Blackstone have moved in too.

Third, one can focus on those countries and industries that derive a good portion of business from China. This means Singapore across a number of sectors as well as Indonesia via their mining product exposures that are often exported to energy-hungry Chinese industries. These are often the cheaper ways to benefit from the China Story without buying into the risk and volatility of their local stock markets.

It should come as no surprise that investors need to incorporate China into their portfolios in an explicit way. As ever, the real decision making process needs to understand fully the risk/return profile. The informed investor could be best served by using cost-effective, passive beta vehicles (like ETFs) rather than investing in a hedge fund that doesn't really hedge at all. Mahalo.