A UK firm’s China energy fund which is trying to tap potentially vast demand from the Asian economy is aiming to raise up to $150 million in its first round of money-raising, eventually reaching $500 million, a senior executive has told WealthBriefing. Arch Financial Products’ China AME Energy Fund, which invests in small and medium-sized energy companies in China, is one of a number of investment funds seeking to cash in on the Asian economy’s rampant demand for energy as well as the recent bull market in commodities. Pitched at high net worth investors – the fund requires a minimum investment of $75,000 – the fund focuses on holding companies outside the largest market cap categories as smaller firms’ valuations have not been stretched, according to Stephen Decani, head of strategy and distribution at Arch. “In terms of places like China, our niche is in doing smaller deals. There are 8,000 Chinese energy companies: that is huge, the trick is to find the hidden gems,” he told WealthBriefing in a recent interview. The focus on firms that fall under the top-bracket category in terms of size is wise: blue-chip Chinese stocks have suffered a sharp setback because of the global retreat from risk due to the credit turmoil. Since it reached a peak in October last year, China’s Shanghai Composite index has plunged by more than 40 per cent. Arch hopes that by focusing on smaller companies, including unlisted businesses, it can hit a target of making an annual rate of return of up to 25 per cent in this fund, which is registered in Guernsey. “The returns you are able to get from these smaller deals are potentially a lot greater in terms of the cash invested,” Mr Decani said. That sort of return, if it is achieved, compares favourably with the world’s major stock markets, which have taken a beating from the global credit crunch. Last year, for example, the Morgan Stanley Capital International World Index of developed nations’ equities made returns – adding dividends to capital gains – of 9.04 per cent. Arch Financial Products is a specialist firm that started out in 2002, providing advice to other fund management companies. It has since launched funds of its own: the first, a UK-registered retail fund, is called the CF Arch Cru Investment Portfolio, holding about £240 million of assets, which was launched in July 2006. Arch now has a suite of Guernsey-registered portfolios, such as the Arch Private Finance fund, which makes money by lending money to small/medium-sized businesses and using their assets, such as trade receivables or working assets, as collateral on loans. This fund, which was launched in January 2007, has made 14.45 per cent returns after fees since that date, Mr Decani added.