US$20bn and 250 Asian Hedge Funds Likely By Year End

Asian hedge fund assets have grown from around US$14bn on 1 January to an estimated US$17bn at the half year point. Our analysis suggests new net inflows in excess of US$2bn with the balance of asset growth from capital appreciation. The ABN Amro Eureka Hedge Fund Index has grown some 7% to the end of May, suggesting approximately US$1bn of growth in existing invested assets.

The opening months of the year saw an initial surge in asset growth, with as much as US$800m of new subscriptions in January; the strong pace continued in February with approximately US$500m of new flows. Thereafter the pace appears to have slowed but still averaged US$250m a month. Of the inflows, our analysis indicates that approximately 12 funds have attracted 90% of the money.

Our universe currently covers 190 Asian hedge funds, of these 55 are in excess of US$50m in size. The investor favourities are one by one reaching capacity, with ten funds in our universe now closed to new investment. We estimate that within the remaining funds over US$50m that are open, there is further available capacity of US$4.3bn. Approximately 70% of this capacity is dedicated Japan funds, leaving available dedicated Asia capacity thin on the ground. Investor choice is becoming rapidly more and more restricted.

There are 76 funds with less than US$25m and of these, 38 funds have assets of less than US$10m. For the first half of the year, our universe has seen only two funds close. The remaining 59 funds are between US$25 and US$50m. We will thus see further funds emerge from these groups but it appears to be hard and time consuming to break the US$50m mark.

Start up activity remains relatively robust; we are currently tracking some 80 potential start-ups. Our experience to date would indicate that around 40 to 50 of these would result in the formation of a fund that commences trading.

We are seeing continued strong interest from Europe and the United States driven by, we believe, relatively pedestrian performance from hedge funds in these markets and better relative potential in the Asia Pacific. Consequently, we would see continued investment flows into Asian hedge funds and conclude that by year end, the fund universe will have grown to 250 funds trading by year end with total assets of US$20bn.