The hedge fund industry in Asia witnessed a difficult 2016 with investor redemptions a main contributor to the lethargy in asset base. Investors redeemed US$3.4 billion during the course of the year, with modest performance-based gains of US$1.6 billion recorded. Indeed, hedge funds globally have had a challenging year with strong redemption pressure from investors, and Asia as a whole was not isolated from this outlook.
QUAD Capital Management (QCM) was set up in Hong Kong in February 2014 as a subsidiary of QUAD Investment Management (QIM) based in Seoul. QIM, which runs US$2.5 billion AUM, had a vision, from its beginning back in 2010, to go beyond Korea in terms of investment geography as well as capital raising. QCM is the firm’s frontier to achieve this goal and currently manages QUAD’s three offshore funds of which QUAD Asia Absolvt Fund is the firm’s flagship fund. HK Choi runs QCM as CEO of the firm while managing QUAD Asia Absolvt Fund as CIO. He has total of 17 years investment experiences of which six years are in distressed debt and private equity investment followed by 11 years in public equity hedge fund industry including six years at Eton Park.
Global financial markets have been peppered with a series of events adding to volatile conditions in the trading environment. Within Asia, monetary stimulus continues to be a main theme as global events weigh in on investor sentiment. The fallout from Brexit; though largely contained for the moment, and the US Federal Reserve’s unconfident march towards policy normalisation will be much watched for as 2016 draws to a close.
Eurekahedge’s Asian hedge funds infographic sums up the industry as at September 2016. Find out more about Asian hedge funds assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Family offices are increasingly popular in Asia. In addition to helping plan the vehicle structure, professional trustees can provide even more value. Family office is a term yet to acquire a definition, but generally represents a platform (sometimes a separate entity, and sometimes a unit within a family business) to deal with the financial and other matters of an ultra-high net worth family. This concept has been prevalent in the United States and Europe for some time, and is becoming increasingly popular in Asia as the number of ultra-high net worth families surge and their demand for wealth management, family planning and other related services gets more complex. Depending on the tax and regulatory environment and the actual needs of the family, a family office can be structured with different vehicles.
InnoFusion Capital Management runs a multi-strategy fund focused in relative value/arbitrage strategies. The fund invests in a wide range of asset classes and financial products, including equities, fixed income, convertible bonds, commodities and derivatives. During the last 10 years, the fund return 14.35% per annum with very low correlation to various markets and asset classes. Dr. Leung Wing Cheong, CEO and CIO shares with Eurekahedge the fund's investment strategy.
Hyung-Kyu Choi is the Managing Partner of Korean-based asset management firm QUAD Investment Management since January 2014. With 16 years of experience in investments, FX trading and credit analysis, Hyung-Kyu shares with us the fund's investment objective, along with his thoughts about the impact of smart watches on the industry, and display technology.
Christopher Peck has been in the industry with 16 years of experience in Japan and Singapore and currently focuses on resources and mezzanine debt at Maiora Asset Management.
Market calamity took Asian hedge funds on a rough ride in 2015, and despite facing financial storms, Asian hedge funds have recorded positive assets under management (AUM) growth in the last quarter of 2015 with the industry’s total asset base growing by US$9.5 billion as of November 2015 year-to-date, bringing the total size of the industry to reach US$171 billion, managed by 1,423 hedge funds.
Singapore’s prowess as a global financial hub is undeniable and while there have been efforts made to position itself in the Islamic financial markets, these have not translated into the success story many have hoped for. Vineeta Tan provides a breakdown of the Lion City’s Islamic finance ecosystem.
Founder and Portfolio Manager Tom Lin has extensive experience in the Asian equity markets as an analyst, investor, and an investment banker. Prior to founding the firm, Mr. Lin managed and launched technology equity sales units for Merrill Lynch, Lehman Brothers, and Deutsche Bank, as well as held a sector analyst role at Anthion Capital. Mr. Lin lived and worked in both Taiwan and Hong Kong for a combined 20 years.
With 20 years of experience in wealth management, the CEO of Abacus Asia Management, Alex Goh discusses the fund's origins and strategy, as well as overcoming challenges faced in the Asian markets.
The China Insurance Regulatory Commission (CIRC) recently issued new regulations that relax restrictions on the investment of insurance proceeds by allowing insurance capital to be used for the formation of private equity funds within the PRC. The Circular of the China Insurance Regulatory Commission on Matters relating to the Formation of Insurance Private Equity Funds (the Circular) was released on 10 September 2015 and aims to further enhance the unique advantages of the long-term investment of insurance funds, support economic development and prevent potential risks. The Circular sets out the categories, investment objectives, governance structure, management and operation and registration and regulation of private equity funds formed by insurance capital (insurance PE funds).
The Asian hedge fund industry grew steadily in 2015 with the asset base growing at twice the rate seen over the same period last year. With strong investor inflows during the year, total assets under management (AUM) increased by US$16.1 billion in July year-to-date, bringing the total size of the Asian hedge fund industry to US$177 billion managed by 1,413 hedge funds.
In this month’s key trends in Asian hedge funds report, we include a feature on Greater China, a region which has made headlines since late-2014. Chinese authorities have sought active intervention in the markets with a series of interest rate cuts, municipal debt-swap programs and ease of banking restrictions through reserve ratio cuts and loan deposit ratios in an attempt to inject the Chinese economy with further liquidity. As such, Greater China mandated hedge funds have seen strong growth in the beginning of the year as the Chinese equity markets rallied on the backs of relaxed capital controls and improving infra
Along with this month’s key trends in Asian hedge funds report, we include a feature on Greater China, a region which has made headlines since late-2014. Chinese authorities have sought active intervention in the markets with a series of interest rate cuts, municipal debt-swap programs and ease of banking restrictions through reserve ratio cuts and loan deposit ratios in an attempt to inject the Chinese economy with further liquidity.
Holding 25 years of experience in trading and equity derivatives business in Hong Kong and the United States, Dr. Leung Wing Cheong, CEO and CIO at InnoFusion Capital Management discusses China’s intention to internationalise the renminbi and factors behind the fund’s success in achieving over 16% of returns in 2008.
Narendra Modi, the prime minister of India, in a public rally in New Delhi on the 4th February 2015 observed: “Pradhan Mantri Jan Dhan Yojana is a reflection of how rich India’s poor are at heart. Without any obligation to put any money in the zero balance accounts, they didn’t open an empty account”. This statement communicates a lot about the healthy and visionary present status of the Indian economy. Tushar Garg writes.
On 17 July 2015, the Inland Revenue (Amendment) (No.2) Ordinance 2015 (Amendment Ordinance) was published in the Gazette. The Amendment Ordinance, which takes effect retrospectively from 1 April 2015, extends the existing profits tax exemption benefiting non-residents (offshore funds) to effectively allow offshore private equity funds to take advantage of the exemption.
In Korea, it has been a very frustrating and painful experience for a market participant with a keen interest having to wait for any significant developments to introduce Islamic finance (in particular, Sukuk) transactions because there has been no public debate or discussion of the bill to amend the Special Tax Treatment Control Act (STTCA) since 2011. This is so true especially after witnessing each successful issuance of sovereign Sukuk by the UK and Hong Kong governments in 2014. Yong-Jae Chang writes.
As recent figures have shown, after a two-year slump, Asia Pacific’s private equity (PE) sector registered its best-ever performance in 2014, with both deal values and exit activity soaring to a new record of US$81 billion and US$111 billion, respectively (Bain & Co Asia Pacific PE Report 2015).
The Asian hedge fund industry has kept up a steady pace of growth and returns comparable to that seen over the same period last year, with modest February year-to-date gains of 1.64%. Total assets under management (AUM) increased by US$3.5 billion largely supported by performance-based gains, bringing the total size of the Asian hedge fund industry to US$164.2 billion managed by a population of 1,382 hedge funds.
Founded in 2003, EuroFin Asia Group is an independent specialty finance house offering investment opportunities across the capital structure spectrum, with a focus on real economy businesses and is located in Singapore and Geneva. With 25 years experience in trade finance, structured finance and commodities trading, get a flavour of commodity trade finance with Christian Stauffer, CEO at Eurofin Asia Group on how the structural aspects of financial trading funds offer growing opportunities in the Asian banking ecosystem despites the regulations most recently brought by Basel III.
The Hong Kong government has announced in its latest budget a planned extension of the existing offshore funds tax exemption to bring offshore private equity funds investing in or through Hong Kong, within its scope. The scope of the amendment will not only bring private companies within the exemption, but will also include SPVs which may be Hong Kong incorporated provided they are owned by an offshore person. This is a significant and welcome development for private equity funds investing in or through Hong Kong (typically into China) that will put private equity funds on a par with hedge funds when investing in Hong Kong. It is expected that the government will introduce the draft legislation in the first half of 2015.
India focused hedge funds have posted spectacular returns in 2014 against the backdrop of rising domestic equity markets, and a renewed sense of confidence in the Indian economy which is being led by Narendra Modi. Hedge funds investing with an Indian mandate have topped the performance tables in 2014 and in this special section of The Eurekahedge Report, we ask some of the top performing Indian hedge fund managers about their winning themes during the year, in addition to investor allocation activity and the key macroeconomic themes which they will be watching out for in 2015.
Gen2 Partners (Gen2) is one of the leaders in customised Asian Hedge Funds for Institutional Investors and Family Offices, in addition to being a trusted partner to help manage investors’ exposure to Asia across all Asian alternative strategies.
On August 21, 2014, China Securities Regulatory Commission (CSRC), the Chinese securities regulator, promulgated the Interim Regulations on the Supervision and Administration of Private Investment Funds (the CSRC Regulations). These new regulations became effective on the same date.
Founded in 2006, Quantedge is a quantitative global macro hedge fund with offices in Singapore and New York.
The Asian hedge fund industry struggled to duplicate their previous year’s outstanding performance amid a more volatile market environment, gaining only 0.31% but outperforming underlying regional markets by over 2% as at May 2014 year-to-date. Total assets under management (AUM) increased by US$5.2 billion during the same period, largely supported by fresh investor inflows, bringing the total size of the Asia hedge fund industry to US$152.8 billion managed by a population of 1,357 hedge funds.
Despite the introduction of an act relating to Islamic finance in 2002, the industry in Thailand has seen little developmental progress over the years, due to minimal support from the Thai government for a comprehensive legislative and regulatory system for the sector. As the country’s sole Islamic bank, the Islamic Bank of Thailand, recovers from a particularly tumultuous 2013, Rebecca Simmonds explores the current condition of Thailand’s Islamic finance offering.
A new era of economic and policy stability has created a benign and improving macroeconomic environment in Vietnam, and is driving significant changes in the country. Investor recognition of these advances is largely responsible for the outperformance of Vietnam’s stock markets relative to regional bourses and frontier peers over the last two years or so. Having learnt a number of lessons, the hard way, through the global financial crisis and on into 2011 Vietnam is now three years into a new stage of its development.
There continues to be great interest in and steady growth of hedge funds in APAC, which is driven by both market and regulatory factors. Hong Kong and Singapore remain the two most competitive jurisdictions in terms of attracting funds and fund managers; however, each has its own particular strengths and disadvantages. InsightLegal Asia Consulting specialises in ‘clarifying complexity’ and below we provide some guidance on how regulatory initiatives in Asia-Pacific are affecting the development of different types of fund and hedge fund structures in APAC.
The Asian hedge fund industry delivered excellent performance in 2013, beating underlying markets and outperforming its global peers during the year. The Eurekahedge Asia Hedge Fund Index gained 16.10% in 2013 with the total assets under management (AUM) increasing by US$20.6 billion. This brings the total size of the Asian hedge fund industry to US$147.0 billion managed by a population of 1,333 hedge funds.
The European Union Directive on Alternative Investment Fund Managers (Directive 2011/61/EU) (AIFMD) was required to be implemented into the national laws of the 28 Member States of the European Union (EU) by 22 July 2013 and also into the national laws of the three additional European Economic Area (EEA) states (Norway, Iceland and Liechtenstein) by a date to be determined. On 19 December 2012, the European Commission (the Commission) published a delegated regulation supplementing AIFMD (the Level 2 Regulation), which sets out further detail around certain other provisions in AIFMD and is directly applicable in the Member States without the need for implementation.
For years, the Chinese private fund industry has operated in regulatory limbo, but a recent series of legislative and regulatory actions should provide greater certainty and help create a more favourable environment for the incipient hedge fund industry in the People’s Republic of China (“China” or the “PRC”). Please note that these changes, which are summarised below, apply only with respect to domestic PRC private funds, although non-PRC private fund managers may wish to bear them in mind as they seek to access China’s burgeoning investor base.
Against the backdrop of an increasingly uncertain regional macroeconomic situation, the Asian hedge fund industry has shown remarkable resilience in 2013. The Eurekahedge Asia Hedge Fund Index is up 7.77% July year-to-date, with the total assets under management (AUM) of the industry currently standing at US$139.0 billion managed by a population of 1,303 hedge funds.
The European Directive on Alternative Investment Fund Managers (AIFMD)1 came into force on 21 July 2011. It is now required to be implemented into the national laws of the 27 Member States of the European Union (EU) and the 3 additional European Economic Area (EEA) states (Norway, Iceland and Liechtenstein) by 22 July 2013.
Singapore has already developed an enviable reputation as a global fund management hub. Yeo Wico and Suhaimi Zainul-Abidin discuss the new regulatory and tax approaches being adopted to encourage the growth of Islamic funds in the country
Athenaeum Limited is focused on maximising the risk and return trade off in Asian Equity investment anchored around our low volatility investment strategy. We give investors access to dynamic Asian Markets with managed risks, and are the only low volatility fund in Asia ex Japan equities. Our approach to portfolio management seeks to provide investors with consistent returns, greater capital protection and diversification within Asia.
The Asian hedge fund industry started 2013 on much firmer ground than compared to previous years. The Eurekahedge Hedge Fund Index gained 9.79% in 2012 and total assets under management (AUM) in the industry were up during the year – currently standing at US$127.4 billion. The industry witnessed some tough times and fickle fortune since the financial crisis and over the last five years the sector has faced numerous challenges.
With the platform for an Islamic finance offering in Hong Kong almost complete, what are the prospects for the growth of the Islamic finance sector in Hong Kong? Bryant Edwards, Craig Nethercott and Nomaan Raja ask whether the region has the capacity to foster an Islamic finance sector.
Hong Kong has yet to make its mark on the Islamic finance sector, with limited interest from industry practitioners. However, taking a page out of Malaysia in terms of education and training could provide new impetus to the sector. Amirullah Haji Abdullah discusses.
Islamic finance continues to grow as a prudent alternative to conventional debt-based structures. Financial assets total more than US$1.3 trillion and instruments are expanding into new countries beyond its traditional markets in the Middle East and Malaysia. At its core, Shariah principles favour the development and sharing of risk in physical assets, which contribute to the economic growth of society. There is therefore a natural match between the Islamic finance model and the acquisition and development of real estate assets. Moreover, Islamic finance is a flexible tool which can be used for a wide range of real estate financings.
There is no comprehensive legal or universally accepted definition of ‘hedge funds’ in China. Generally, they share certain common characteristics, including: being privately offered; requiring investors to have a certain minimum net worth and/or level of financial sophistication; investing in equity securities, fixed income securities, derivatives, futures and other financial instruments; having a perpetual term; imposing liquidity restrictions on investors’ capital; pursuing absolute return rather than measuring investment performance in relation to a benchmark; compensating managers with incentive fees; allowing considerable flexibility in investment strategies; being highly leveraged; and being subject to limited regulatory supervision.
Marko Ho is in charge of all investment decisions of the fund as Legends Asset Management’s CIO. Being the general partner he is also responsible for the firm's strategies definition and execution. He has over 10 years of investment experience in HK/China markets. Prior to establishing the firm, he was a portfolio manager of Societe Generale Asset Management (SG Asset Management). During his time at SG Asset Management from 2008 to 2010, his China fund which focused on small-mid caps was consistently ranked at top 3 in Greater China universe. Before joining SG Asset Management, Marko worked at a hedge fund - Quam Asset Management, where he was an Assistant fund manager/Senior research analyst initialising the long/short strategy in HK/China, A and B share markets. Mr. Ho holds a Bachelor of Business Administration (Hons) degree from The University of Hong Kong. Before joining the investment industry, he had many years' experience in running a manufacturing business in China.
Asian hedge funds have witnessed tough times since 2008 and have faced numerous challenges over the last two to three years. The industry saw tremendous growth between 2000 and 2007, with the number of funds increasing eight-fold and total assets under management (AUM) growing by nearly 800%. By end-2007 the size of the Asian hedge fund industry stood at US$176 billion managed by 1200 managers.
The Shanghai Municipal Government Financial Services Office (FSO) is preparing to launch the Qualified Domestic Limited Partner Program (QDLP), a pilot program that will permit qualifying foreign hedge funds to raise RMB-denominated funds in mainland China. Under current law, domestic investors are not permitted to invest in foreign hedge funds without certain government approvals that are difficult to secure. The new QDLP measures are significant in that they will, for the first time, open the China market to fundraising by foreign hedge fund managers. Following implementation, QDLP is expected to have a major impact on international fund managers that are interested in China’s sizeable institutional market.
Following recent trends in the world’s advanced economies for increased regulation of alternative investment funds (AIFs), on May 21, 2012, the Securities and Exchange Board of India (SEBI) issued the SEBI (Alternative Investment Funds) Regulations, 2012 (the “AIF Regulations”) to provide a comprehensive framework for the regulation of AIFs in India. SEBI seems to have adopted many of the suggestions and comments it received from stakeholders when it released a draft of the AIF Regulations back in August 2011.
We survey the Asian hedge fund landscape and shed light on the size, investment region, strategy, and performance metrics of funds operating in Asia.
Fortress Investment Group manages US$47 billion in variety of strategies, primarily focused on alternatives. Two hedge fund strategies – Fortress Asia Macro Fund and Fortress Convex Asia Funds are run out of Singapore.
Since December 2002, foreign institutional investors have been permitted to invest in China A Shares listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange through the Qualified Foreign Institutional Investor (QFII) programme. The QFII programme allows licensed foreign investors to invest in China A Shares in the local currency provided that certain minimum criteria are met. The return on the investment, including dividends and capital gains, can be legally exchanged into foreign currency and repatriated
VL Asset Management, founded in January 2009, is a Hong Kong-based investment firm licensed by the Securities and Futures Commission (SFC) of Hong Kong. In its team of eight, four are investment professionals with complementary skills across fund management, equity research, equity trading, journalism and company audit
This briefing note provides a short overview of the regulatory requirements imposed by the Office of the Securities and Exchange of Thailand (SEC) for THB bond/debenture offerings in Thailand (Offering) by foreign issuers or any special purpose vehicle established by a foreign government organisation/entity or by any foreign entity, for the purpose of securitisation in Thailand (collectively, the ‘Issuer’). It is not intended to be comprehensive and should not be used as a substitute for taking legal advice in the context of a particular transaction.
Yeo Wico and Suhaimi Zainul-Abidin discuss Singapore as a case study offering the potential for Islamic finance to flourish in a predominantly non-Muslim country.
The Asian hedge funds sector witnessed some mixed fortunes in 2011 with managers posting (on average) negative results for most of the year but also experiencing net positive asset flows. As at end-December 2011, the total size of the industry stands at US$124 billion managed by nearly 1300 funds.
In the blizzard of increased regulation from the United States and European Union, in particular the Dodd Frank Wall Street Reform and Consumer Protection Act and the Alternative Investment Fund Managers Directive (AIFMD), Asia’s two competing international financial centres – Hong Kong and Singapore, have traditionally taken different approaches to the further regulation of hedge fund managers. In the former, since the enactment of the Securities and Futures Ordinance (SFO) in 2003, no exempt status has been available. In the latter, there has long been an exemption for hedge fund managers. In the Special Administrative Region, since the global financial crisis the licensing regime has remained unchanged while in the ‘Lion City’ the regulatory regime is undergoing fundamental reform
As evidenced by the draft amendment on local hedge funds and prime brokers that has recently been released for public review, Korea is on the verge of having its own homegrown hedge fund industry. Many of the overly restrictive regulations that had previously stifled the development of Korean hedge funds are set to be eliminated or eased, while other areas have been given greater clarity. Because of these positive steps, many industry participants are sanguine about the potential for the industry, but some of the optimism may be excessive. This article attempts to outline some potential pitfalls for the industry in its early stages and show how financial regulators and institutional investors must continue to play an important role in ensuring that the industry develops in a manner that is not only sustainable but that promotes financial system stability and investor protections.
Central Asset Investments (CAI) is an Asia focused multi-strategy investment firm licensed by the Securities and Futures Commission (SFC) in Hong Kong. Founded in April 2005, the firm is headquartered in Hong Kong with a research office in Shenzhen, China. The CAI team consists of 17 professionals working across portfolio management, research, risk management, operations, and investor relations.
Asian hedge funds have witnessed remarkable growth over the last decade in terms of both fund population as well as assets under management (AuM). As at August 2011 the total AuM in Asian hedge funds stood at US$135 billion; nearly six times that as of end-2000 while the number of funds increased more than six fold in that same period.
Siripen Kaodara and Stephen Jaggs discuss the Thai laws that have brought advancement in the country’s Islamic finance industry.
Thailand has a Muslim population of approximately nine million and an Islamic banking system which dates back to 1998. However, it previously lacked the necessary legal infrastructure for high profile Islamic products such as sukuk. Today, Thailand has advanced a few further steps into the growing Islamic finance market by developing its laws.
Recently in Japan, Islamic finance has been attracting the attention of many potential market players. In December 2010, the Financial Services Agency of Japan officially announced its aim to ’promote the development of an environment for the issuance of Islamic bonds in Japan’ in its action plan for a new growth strategy.
In relation to asset growth, performance, development of the service provider space and availability of new products and strategies, the Asian hedge fund industry has witnessed some remarkable trends over the last 11 years. At the start of 2000, there were less than 150 hedge fund managers that were investing in the region, including those based outside Asia, with a total AuM of less than US$20 billion.
In the aftermath of the financial crisis, demand on the part of institutional investors for more regulated, transparent and liquid collective investment schemes, and continuing uncertainty over the impact of the Alternative Investment Fund Managers (AIFM) directive on their marketing activities in Europe, have led to increased interest on the part of Asian hedge fund managers in so-called "Newcits" – UCITS (Undertakings for Collective Investment in Transferable Securities) funds which pursue hedge fund type strategies and invest in derivatives for speculative purposes as opposed for efficient portfolio management.
For a number of years, the utilisation of Islamic financing methods and practices has been discussed as one of the next significant trends in the Japanese financial market. This has yet to be the case unfortunately, largely because of the prolonged downturn in Japan's economy following the global financial crisis.
The Association for Sustainable & Responsible Investment in Asia (ASrIA) advocates that sustainable economic development is the only viable option for Asia, with SRI (sustainable and responsible investment) as a key market mechanism towards achieving this goal. ASrIA also points out that with growth of SRI in Europe and the US, SRI activity is growing in Asia and that despite total money under management in Asia of less than US$2.5 billion, this figure is increasing rapidly as SRI becomes incorporated into investment strategies around the region.
The Asian hedge fund space, which includes funds that are either based in Asia or investing in Asia, has been one of the fastest growing sectors in the global hedge fund industry since 2000, both in terms of assets and number of funds. However, the industry has also gone through difficult periods and diverse phases. After witnessing tremendous growth in the first eight years of the decade, Asian hedge funds went through a lean period in 2008 and early 2009 amid the global financial downturn and widespread redemptions.
In response to the significant financial distress experienced since late 2007, in connection with the global financial crisis, lawmakers and regulators (particularly in the US and Europe) are in the midst of efforts to effect comprehensive reforms to their respective financial regulatory systems.
Mulligan (games): when a player gets a second chance to perform a certain move or action.
To some degree, the markets of 2009 and the start of 2010 make it seem that 2008 never happened. This is especially true in Asia where we have less of the structural issues that the Western economies suffer from, ie, high consumer debt, unemployment and deteriorating government balance sheets.
Jiffriy Chandra tells us more about his investment platform that covers all asset classes in the Asian markets covering high grade and sovereign credit, high yield, special situation, distressed and restructuring opportunities, equities and macro fund products. Income Partners is a Hong Kong-based asset management company dedicated to the Asian emerging markets that provides independent asset management and investment advisory services to institutional, private and high-net-worth investors, foundations, pension funds and government agencies. Headquartered in Hong Kong with offices in Beijing and Singapore, we are authorised and regulated by the Hong Kong Securities and Future Commission and registered with the Japan Financial Securities Agency (FSA).
The Asian hedge fund sector grew at an exponential pace through the first eight years of the last decade before witnessing heavy redemptions in 2008 and early-2009 along with significant losses due to the financial downturn. The size of the region’s hedge fund industry peaked in December 2007, reaching US$176 billion; however, the combined effect of withdrawals and performance-based losses brought the assets under management down to US$105 billion in April 2009.
After the initial bout of finger-pointing recriminations about the risk management failings which precipitated the credit crisis, debate soon turned to when the recovery might be expected to come. Now, hardly a day goes by without some form of significant comment about the march out of recession and who may lead that march.
The lower levels of leverage both of the hedge funds themselves and their investors, coupled with the willingness of Asia hedge funds to meet redemption requests, recognising that suffering a reduction in assets under management would go towards preserving the future relationship with cash-hungry investors, has meant that the level of hedge fund restructurings in Asia may have been less than in other parts of the world.
We have just passed the one-year anniversary of the great financial crisis of 2008 – an event marked by the print and television media with a series of in-depth retrospectives. To my mind, all of these reviews seem to have struggled to portray the events of late last year as a watershed moment in the evolution of the financial services industry. Twelve months down the line, how much has really changed for the hedge fund industry in Asia and has any good come out of this crisis?
There is no doubt that Asia has felt the force of the global economic crisis. As credit conditions have tightened, deal flow across the region has grounded to a virtual halt. At the same time, those initial public offering windows that were previously available have been firmly shut, meaning private equity investors looking for an exit will have to rely on strategic buyers themselves in equally short supply.
After growing at an exponential pace for nearly five years, the Asian hedge fund industry suffered massive redemptions coupled with significant losses, owing to tumbling equity markets in 2008, bringing its size down from its peak of US$176 billion as at end-2007 to US$107 billion as at end-July 2009. Although the current level of assets is no different from that seen around the end of 2005, it represents a remarkable 24% compounded annualised growth rate since end-2000, compared to a 16% annualised growth rate for the global hedge fund industry.
Hedge funds across the board faced a rough year through 2008, with Asian managers being no exception. The average Asian hedge fund, as measured by the Eurekahedge Asian Hedge Fund Index, fell 21.1% in 2008, with the region’s hedge fund industry shrinking by nearly US$50 billion (28%) in terms of assets. Based on the data of over 1,160 hedge funds in the Eurekahedge Asian Hedge Fund database, we estimate the size of the Asian hedge fund industry at 1,117 funds managing US$126 billion in assets as at end-2008.
Heterogeneous is not an adjective one would use to describe the private equity industries in the Asian region. Quite the opposite in fact; countries in the Asian region range from more developed markets such as Japan, Australia and Hong Kong and Singapore to up-and-coming countries such as China, India, Indonesia, Thailand and Vietnam. The diverse histories, political, regulatory and economic structures offer investors a plenitude of opportunities, but also mean association bodies play a vital role in transmitting education, training the next generation of private equity funds, and lobbying governments for conditions to encourage continued development of the industry not in just their own countries, but throughout the region.
Institutional investors in Asia are increasingly finding that structured products are a useful way to buy exposure to hedge fund returns. Driven by market volatility and a greater focus on capital treatment, insurers and financial institutions are increasingly buying funds of hedge funds with principal-protected wrappers. They are also using derivatives and structured products to switch hedge fund investments into their local-currency allocation or even to make them Shariah-compliant.
Up until a few months ago, inflation was something mainly central banks in the developed world concerned themselves with. As Mervyn King and Ben Bernanke struggled to decide which was the lesser of the two evils – slowing economic growth or inflation – emerging markets (EM) looked like they were about to come out of the credit crunch relatively unscathed. However, fast-forward to July 2008 and inflation has become the biggest threat facing EM, driven in large part by skyrocketing food and energy prices. According to the Asian Development Bank, inflation in the Asian region is expected to reach a decade-high this year and is accelerating faster than anywhere else in the world. Inflation now exceeds targets in at least 19 emerging economies.
Emerging markets private equity fundraising is on track to significantly beat 2007 totals. Led by Emerging Asia, 104 funds dedicated to investments in emerging markets raised more than US$35 billion in capital in the first half of 2008, a 68% increase over the amount raised during the same period in 2007, according to the Emerging Markets Private Equity Association (EMPEA). The total value of private equity funds raised in the first two quarters of 2008 exceeds the US$33 billion raised during all of 2006.
The Eurekahedge Asian Hedge Fund database contains data on over 1,5701 funds, based partly on which, we estimate 1,204 operational hedge funds in the Asian hedge fund industry, managing assets to the tune of US$171 billion, as at the end of July 2008. The industry has grown at a robust pace over recent years both in terms of assets as well as number of funds – assets have increased by over three and a half times, while the number of funds has more-than-doubled since December 2003.
Asia has experienced rapid growth in alternative investments in recent years, fuelled by investors’ search for increased alpha in emerging markets and by institutional players broadening their investment horizons to diversify geographical risk. Assets allocated to hedge funds, private equity and, increasingly, real estate and infrastructure funds have seen significant growth. This has led to alternative assets starting to become part of the investment mainstream.
Asian Venture Capital Journal (AVCJ) Research figures show that after a year of private equity industry upheaval, the Asia Pacific industry is at last registering the effects of the downturn in the asset class. Although private equity and VC capital under management across the region continues to grow, its rate of growth has slowed and almost every other industry metric is down on last year.
The 2008 edition of the Eurekahedge Asia and Japan Hedge Fund Directory covers over 860 flagship funds and is the epitome of its online counterpart, which covers 1,1501 Asian hedge funds2. Based on this and related information, we currently estimate the total size of the Asian hedge fund universe at US$160 billion as of end-2007, up 21% from our end-2006 estimate of US$132 billion. Judging by this, the performance of the Eurekahedge Asian Hedge Fund Index (19% for 2007 and 12% annualised) and the general growth of the industry over the last decade (see Figure 1), the Asian hedge fund space continues to be on a robust growth curve on both counts – number of funds and size of assets.
It has been a volatile 2007 for the stock markets, and perhaps not a good start to 2008. But one certainly can’t say the same of Singapore’s policies towards the fund management industry. The policy has been stable and consistent in wooing fund managers to set up shop here. The government has adopted a proactive approach in building its position as a key fund management centre in Asia.
fter two consecutive positive months amid rising risk appetites and rallying markets, hedge funds across the board gave back some of these gains in November, with the composite Eurekahedge Hedge Fund Index down 1.6%. A key factor in this market turn was re-emerging concerns over problems in the US housing and subprime markets, as it became apparent that the losses suffered by some of the large global financial firms were far greater than expected. This led to large-scale risk aversion among market participants.
Over the past five years of relatively benign markets, it seems Asian hedge funds have been lulled into a false sense of security where the perceived need to have risk management practices on par with global standards is alarmingly low. However, the current credit crisis is bound to change this precarious perception. As the finance industry continues to cope with the widespread fallout from the US subprime mortgage debacle, investors – especially large institutional investors – are becoming increasingly concerned about their fiduciaries having proper risk management infrastructures in place, and rightly so.
Historically, hedge fund managers in Asia have had few choices when it comes to hedge fund administration and outsourcing. This has resulted in complaints from many hedge funds when it comes to fees and, in particular, capacity to launch new funds. However, while capacity issues have hampered the growth of the Asian hedge fund market, the limited capabilities and offerings of local administrators have impacted the market even more by preventing, or at least slowing, the introduction of new strategies. These limitations have limited the ability of local, Asian based, fund managers to offer their products to foreign investors as well.
Asia has perhaps the richest and most diverse cultural, linguistic and political environment in the world. This diversity provides a wealth of opportunities for the expanding private equity community, but also some formidable challenges.
Some private equity firms have responded to this diversity by focusing on Asia’s more developed markets, or on those where they have specific, in-house expertise. Others believe that, despite the challenges of adapting the private equity model to diverse jurisdictions, the value to be gained from such an approach outweighs the structural and political risks.
In the old days banks lent money and out of this grew a business called syndicated lending. Today there’s a new phenomenon. Investment banks are now investing in Asian companies – side by side with hedge funds – in what might be termed ‘syndicated investing’.
The 2007 edition of the Eurekahedge Asia and Japan Hedge Fund Directory contains information on over 1,150 Asian hedge funds. Based on this and related information, we currently estimate the total size of the Asian hedge fund universe at US$132 billion as of end-2006, up 30% from our end-2005 estimate of US$101 billion. Judging by this, the performance of the Eurekahedge Asian Hedge Fund Index (+16% for 2006 and +12% annualised), and the general growth of the industry over the last decade (see Figure 1), the Asian hedge fund space continues to be on an exponential growth curve on both counts – number of funds and size of assets.
The following article is a reproduction of a round table discussion by the global partners from White and Case's hedge fund services practice. The partners discuss recent changes in global regulations and their ramifications for Asian managers.
The ramifications of the Asian financial crisis were many, but high on the list was the creation of an unprecedented volume of bad debt.
Although specific estimates vary, it is largely accepted that almost US$2 trillion worth of non-performing assets (NPAs) sat on balance sheets – which at the time represented almost a third of Asia’s GDP.
Economic growth was impeded by the weight of this bad debt – since the capital badly needed to help rebuild economies was tied up with defaulted borrowers.
As always, adversity promotes opportunity. Distressed debt workout specialists, primarily the larger international investment banks – such as Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley – became successful at turning the region’s bad debt into a lucrative business.
The 2006 edition of the Eurekahedge Asian Hedge Fund Directory contains information on close to 950 hedge funds, investing and/or located in Asia, an investment space that stands at just over US$128 billion as of the end of July 2006. Although the pace of growth of the industry has lessened (we expect the industry to grow 25% by number and 40% by assets, in 2006) compared with the past two years (for instance, the number of hedge funds in Asia grew by 35% in 2004 and 30% in 2005), in absolute terms, the growth is still substantial, with more than US$30 billion in net assets estimated to flow into Asian hedge funds in 2006.
The objective of an event-driven investment strategy is to profit from investing in securities that are subject to corporate events. Significant corporate events can cause inefficiencies in the pricing of securities issued by companies undergoing such events (particularly in respect of the probability and timing of the event), which event-driven funds then seek to exploit. Such corporate events include mergers and acquisitions (M&A), capital-management initiatives, directors’ trades, earnings surprises and corporate distress.
The bursting of Japan’s bubble economy and the ensuing Asian crisis of 1997-98 created an entirely new asset class in Asia: distressed debt. Companies that were once healthy and viable filed for bankruptcy, creating a large investing landscape for specialised investors. Distressed debt arises when a company is experiencing financial difficulty, and has defaulted on its debt obligations. To align the capital structure with repayment capability, the company must reduce debt by either restructuring its balance sheet or by liquidating some of its assets.
In December 2004, by a contentious 3-2 vote, the SEC adopted Rule 203(b)(3)-2 (the “Hedge Fund Rule”) under the Investment Advisers Act of 1940. The Hedge Fund Rule requires investment advisers to count as clients the investors in a “private fund” (as defined in the United States Investment Advisers Act of 1940, as amended, the “Advisers Act”). Hedge fund advisers previously relied on the “private adviser exemption” from registration provided in Section 203(b)(2) of the Advisers Act, which provides that an adviser which has had fewer than 15 clients during the course of the preceding 12 months and that neither holds itself out generally to the public as an investment adviser nor acts as an investment adviser to any registered investment company is not required to register with the SEC.
“Portable alpha” is a widely discussed concept in Europe as well as in Asia. However, successful implementation has been rare. We will discuss three basic concepts that can be applied to institutional portfolios or investment funds. Hedge funds are identified as the most attractive source of alpha. An alpha overlay (swap) is described as the most efficient way to import alpha into existing portfolios and investment funds. Such a swap can add significant additional return without adding a proportional amount of risk to the portfolio. Single hedge funds will be compared with funds of hedge funds and hedge fund indices regarding their suitability for alpha swaps.
Asia is currently reaping the benefits of being the developed world’s emerging market of choice, with new billion-dollar funds, and now, big deals to match. Yet the Middle East, driven by a combination of rising oil prices and internal reform and revitalisation, is equally in the spotlight as a new cluster of high-growth economies. Add the fact that several of Asia’s prime investment destinations – especially India – are positioned to tap the dynamism in both regions, and there seems plenty of cause to link the two together. PEAsia talked to experts in both regions, for perspective on the new Middle Eastern/Asian private equity connection.
To say that the Asian markets have been a hotbed of opportunities for investors of all stripes in the recent past would be to acknowledge the obvious. And yet, it is as good a starting point as any in reviewing the growth and performance of Asian private equity (PE) funds in 2005.
There has been a burgeoning interest from global investors over the past four years in the Asian hedge fund space. Newly launched fund managers with a good business model and compelling performance are getting above the critical mass needed to run a business much faster. Notwithstanding the much-abused catchphrase 'Asia is hot', the region is indeed still characterised by information asymmetries, and an understanding of the industry's growth and performance dynamics is not without its benefits. It is to this end that this write-up highlights some of the key trends in Asian hedge funds over the past few years.
Gregory Smith has over 25 years' experience in the commodities markets as a fund manager, senior trader and founder/co-founder of two CTA funds, as well as the Enhanced Commodity Index (ECI) Fund for Asian and European investors.
With the hedge fund industry booming worldwide, Asian-based hedge fund managers are exploring ways to access the huge pool of potential investors in the United States and other key financial centres around the world. Largely driven by this growing momentum, Asian-based hedge fund managers are increasingly utilising master-feeder structures to establish a product that is attractive to international investors, thereby significantly widening their target investor base beyond the traditional Asian stomping ground.
Asia Pacific markets make up 15% of the world's market capitalisation but Asian-strategy hedge funds represent only 6.5% of the world's hedge fund market by assets. However, the robust growth seen since 2000, is a definitive indicator that this disconnect is continuing to close. Asian-strategy hedge funds have witnessed a strong growth since 2000, with assets increasing 35% per annum and Asia is also home to some world-class managers who typically still have capacity unlike in more developed markets.
Arlington Group and Eurekahedge have formed a joint venture to provide seed capital and support to Asian hedge funds and Asian long-only absolute return funds. Arlington will commit seed capital to the individual funds while Eurekahedge will provide origination, analytical support and the full resources of its globally based capital introduction team (New York, Geneva, Zurich, London, Tokyo, Hong Kong and Singapore). Richard Armstrong, one of Eurekahedge's founding partners and Joseph McCarthy, Arlington's Asia-focused investment manager, will jointly be responsible for managing and developing the seeding platform.
Established in late 2002, KGR Capital provides specialist management and advice on investments in Asian hedge funds. Its flagship fund, KGR Capital Asia Pacific Absolute Return Fund, is a diversified multi-strategy, multi-manager portfolio of Asian hedge funds.
As assets managed by hedge funds globally pass the US$1 trillion mark, voices of the rational shadows whisper that the industry is due for a market correction. Yet fears of a bubble in the industry may be unfounded at least from an Asian perspective, which many see as an emerging opportunity-rich sector essentially catching up with the US and Europe in terms of strategy sophistication and market deployment.
Private equity is a rapidly expanding industry in the Asia-Pacific region. It is estimated that there are over 500 private equity funds, managing over US$100 billion. They invest in sectors ranging from technology to healthcare. Some of the world's leading private equity funds are active in Asia. There are also some very large domestic private equity investors such as Government of Singapore Investment Corporation and JAFCO.
This is indeed a very special gathering; there are not many industry venues where both sides of the alternative asset management family are brought together to talk about matters in common. Of course, what we are here to talk about today is how these two disciplines are moving towards each other in many different ways - this is the notion of convergence. While this process is just getting underway in Asia, it is very far advanced in the US and Europe, and perhaps by discussing the trends we've seen you will have some insight into what may happen here.
While the year in 2004 saw respectable gains for many managers, it was not the stellar year which we saw in 2003. The ABN Eurekahedge Asian Hedge Fund Index gained almost 9% through the year, falling short of the 27% gains in the previous year. In contrast, the MSCI AC Asia Pacific Free Index and the MSCI AC Asia Pac. Free Index ex Japan rose by 16% and 19% respectively over the year.
2004 was a trendless and choppy one for hedge fund managers, with a contraction of volatility on both an implied and realised basis, making it difficult for volatility strategies to perform. With the markets trading within fairly narrow bands, it proved a challenge for directional strategies. Relative value managers also found themselves increasingly squeezed by the rising wall of money thrown into the markets by new funds. However, the increase in the number of funds has served to increase liquidity in many markets; and the greater ability to short has helped funds in some previously difficult markets like India and Indonesia. Emerging market debt and distressed strategies were the best performers for the year due to some of the lowest yield spreads in a generation. They were followed to a certain extent, by event-driven strategies.
Due to the relatively small size and opacity of the Asian hedge fund industry, we felt there was a need to increase the exposure of Asian-based managers and to offer an indication of their performance. The Eurekahedge indices allow us to do this by highlighting the returns of the industry as a whole. The indices also serve to highlight to investors the kind of impressive returns possible from the Asian hedge fund sector. There are three indices in our family, namely the Eurekahedge Index, the Eurekahedge Japan Index and the Eurekahedge Asia ex-Japan Index.
Asian hedge funds posted their largest gains of the year in November, with a 3.03% gain overall, and a 3-month return of 4.71%. In fact, the gains were the best since mid-2003. The charge was led by the ex-Japan region, which gained 3.93% for November, and emerging markets, which added to this year's excellent returns with their best monthly performance since early 2001. Conversely, a 5% drop in Japanese equities for the month slowed the Eurekahedge Japan Index to a 0.5% gain. Japan's sluggishness reflects poor economic data and a slower-than-expected recovery. In general, most of the gains in the last three months were from currency appreciation due to the declining dollar. Asia's emerging markets continue to be the hot sector and the favourite global play is still long Asian currencies versus a short dollar.
Global markets breathed a sigh of relief after the US presidential election, and October returns marked the beginning of renewed confidence in a sustainable recovery in the United States and in the Asia Pacific. A steady search for profits continued to push share prices cautiously higher. In line with these increases was the ABN AMRO Eurekahedge Asia-ex Japan Index, which was up 1.04% for the month of October.
Octagon Capital adopts a quantitative approach to investing and is run by Lam Poh Min and Nelson Chia in Singapore. Poh Min has ten years of portfolio management experience. Prior to setting up Octagon, he spent nine years with Singapore's Government Investment Corporation (GIC). He was a senior portfolio manager in the quantitative investment unit. Nelson was a trader at GIC for nine years, working in Singapore, London and New York.
There has been renewed discussion in the Hong Kong market recently on the possibility of expanding the securities borrowing and lending (SBL) facility provided by Hong Kong Securities Clearing Company (HKSCC), a subsidiary of HKEx. However, commentators have differing perceptions of the value of such service, and indeed different understandings of what SBL entails. This article seeks to clarify some of these perceptions.
Harvest Investment Partners manages the Harvest Asia Fund, an Asia ex-Japan, long / short equities fund. Singapore-based Harvest Investment Partners was established in July 2003 by Tiong Jin Yan, Michelle Tan-Chian and Michael Liang. The fund has generated returns of 2.33% year-to-date and 5.51% since inception (November 2003).
How do hedge fund demand, regulation, structures and scale interact and fuel each other in Europe and Asia? Everywhere funds-of-hedge-funds are gaining momentum. In Europe there is emphasis on hedge funds (and funds-of-hedge-funds) domiciled domestically or in pan-European centres. Offshore domiciles are increasing regulation to compete. Asia has experienced dramatic activity in both hedge fund demand and supply, but lack of scale has been a frustration there and elsewhere. Differing regulatory requirements mitigate against scale, and more investor and distributor education is needed, but who will bear the cost of lobbying and education efforts?
Dynasty Asset Management Ltd was established by Steve Dai and Edward Mullen in 2000. The firm is one of the earliest alternative investment managers to set up operations in Shanghai. It manages two funds - the Dynasty Fund and the Dynasty China Opportunities Fund. The former has generated average annual returns of 38.5% since inception (February 2001) and -4.72% year-to-date, while the latter was launched this year and has generated returns of -2.72% since January.
Since the mid-nineties, the Singapore Government has identified the investment management industry as one of the key financial sectors to develop. To this end, the Singapore Government, through the Monetary Authority of Singapore ("MAS"), has introduced various incentives and reforms to encourage the growth of the investment management industry.
The hedge fund industry in Japan is currently experiencing an unprecedented period of growth. Aggressive independent fund management utilising advanced alternative investment management techniques specifically designed for Japanese institutional and high net worth investors was difficult to imagine as recently as five years ago. Investment in Japanese markets by foreign capital, once the dominion of "bulge bracket" investment and universal banks, is now equally likely to take place through offshore funds applying a variety of advanced financial strategies to Japanese equity and fixed income markets.
Commodity futures and options are the oldest derivatives products. Producers and consumers need to hedge against fluctuations in the harvest, and even in early times farmers and merchants made informal agreements among themselves for delivery at pre-arranged prices. The first formal futures markets were the rice exchanges in eighteenth century Japan. Today, commodities are vital to the world economy, and the use of commodity futures continues to grow. However, since the introduction of financial futures in the 1970s, their relative contribution to exchange trading has diminished in importance.
Looking at the recent popularity of Asian-based strategies and the amount of money flowing into them, it is tempting to think that from Asia itself there is a lot of money going into, and about to go into, alternatives. In reality there is little correlation between the two investment flows.
Financial distress arises when a company has too much debt and too little cash flow. The company must seek to reduce this debt burden by either restructuring its balance sheet or by liquidating the assets used as collateral. Distressed debt is any payable that has been issued by such a company. The asset class includes bank debt, fixed and floating rate public debt, convertible bonds and private debt including trade claims. Investors in the asset class take advantage of the significant fall in price of these claims in the event of financial distress.
Risk management is still a new concept in the alternative investment community, particularly in Japan. Unfortunately, there is no textbook definition of risk management just like there is no textbook definition of corporate management or fund management; which further complicates how risk management is implemented. These terms merely reflect the culture and philosophy of the management team, which uses its skills running a business. Risk management therefore reflects the culture of the company or fund that the management team has already established.
The Asian convertible bond market has come of age. Convertibles are now regarded as a separate asset class and as a vital part of the corporate treasurer's toolkit when it comes to financing. From an investment perspective, returns from convertible outright and hedge funds have been strong over a number of years.
We expect the positive macroeconomic background in Asia to persist in 2004. Our base case is for growth to pick-up in G3 economies (US, Euroland and Japan), leading to a coordinated global recovery. Asia will benefit from a pick-up in exports to these markets. Additionally, growing domestic demand and stronger inter-regional trade, driven by China, will add further impetus to growth. Thus we still expect the environment to be credit friendly in 2004.
Eurekahedge, Asia’s leading hedge fund consultancy, has opened Asia’s first hedge fund hotel. The hedge fund hotel compliments Eurekahedge’s existing start-up consultancy services by providing additional support for new hedge fund tenants including technical support, administrative support, premises, marketing and incubation.
The Japanese stock market has been non-directional and unstable for more than ten years and fully reflects the ailing Japanese economy. Looking around the world, it is hard to find any traditional financial products profiting steadily under this situation. What is an investor to do? Pair-trading is a relative value investment strategy that seeks to minimise market risk and take advantage during such unstable times.
Kenneth Hung is the fund manager for the Trophy Fund, a long/short equities pan-Asian hedge fund. The fund returned almost 300% in 2003 and has posted an annualised return of 57% since inception in September 2001. They currently have US$8 million in the Trophy Fund and US$10 million in a separate managed account.
The recent rapid growth of the hedge fund industry in Asia has prompted an increasing number of Asian-based hedge fund managers to explore other options for structuring their funds that will afford tax efficient access to the U.S. and European capital markets. Establishing a new fund, or restructuring an existing offshore fund to incorporate a master-feeder structure, is one way in which this objective can be achieved.
The U.S. House of Representatives (lower house) passed late last year House Resolution 2420 (Mutual Funds Integrity and Fee Transparency Act) which would require a study on soft dollars and ban managers from jointly running mutual and hedge funds. A similar bill, Senate 1971 (Mutual Fund Investor Confidence Restoration Act), has been introduced in the U.S. Senate (upper house). The Senate bill would also ban the joint management of mutual and hedge funds. Besides the management ban and soft dollar regulation, both bills are more focused on the mutual fund industry than regulating hedge funds.
The Asian hedge fund industry is coming of age, with funds having had a stellar year in 2003; the Asian hedge fund index was up by 27% and assets under management rose about 75%. From inception in the late 1980s, growth was relatively pedestrian for most of the first decade. The late 1990s saw a marked change with a rapid acceleration of growth in the number of funds and assets, albeit from a low base.
The FUJIMAKI JAPAN Macro fund is a Japan focused macro strategy fund. FUJIMAKI JAPAN Co., Ltd. is the investment advisor to the fund.
The Plaza Japanese Equity Long Short Fund is a long/short equities fund that uses a quantitative alpha model to capture opportunities across a broad universe in the Japanese equity market. Eurekahedge interviews its fund manager, Kazuyuki Murai.
Lynx Arbitrage is an Asia Pacific, relative value volatility arbitrage fund with a stated focus of delivering optimal, consistent "risk-adjusted" investment returns uncorrelated to general market movements and trends by exploiting pricing anomalies between Asian Pacific stocks and related exchange traded derivative contracts.
The Asian hedge fund world has gone from cottage industry to a rapidly maturing, must-have sector for global allocators.
The Asia hedge fund industry is integrating globally. Investors are putting money not just with Asia strategies based in New York and London, but with managers based in the Asia-Pacific region.
Let us assume for sake of argument that you are an Asian based start-up looking to raise money in the West.
The first decision to make is the route you want to take: the seeder/feeder/dribbler route or simply going it alone.
The seeder route means finding a friendly provider of capital for the fund, who in return will expect a percentage of the management company, low or no fees on money invested and possibly all sorts of other incentives such as capacity rights, transparency and some interesting buyback provisions. With no "normal terms" for such deals, very much depends on the respective bargaining strengths of the two sides; anecdotal evidence shows that a US$20m investment in the fund for 30% of the management company is in the ball park.
This inaugural edition of the Eurekahedge Absolute Return Fund (ARF) Directory contains information and data on more than 100 long-only alternative funds managed for absolute return that represent in excess of US$13bn of assets. These funds invest in securities domiciled or having primary operations in Asia-Pacific, inclusive or exclusive of Japan, and Global Emerging Markets, or otherwise derive significant earnings from Asia-Pacific, inclusive or exclusive of Japan, and Global Emerging Markets.
KGR Capital is a new entrant in the Fund of Funds world, and one of the few to specialise in Asian hedge funds. Eurekahedge talks to one of the principals, John Knox.
Interview with James Parker, Senior Portfolio Manager, ABN AMRO
We recently sat down with the Chief Operating Officer and Head of Product Development at Eurekahedge Pte Ltd. In addition to running the operational side of Eurekahedge, Alexander Mearns is the resident statistician for the group and developed the ABN AMRO Eurekahedge indices in 2002. Prior to working for Eurekahedge, Alex was a business analyst for Fleming Asset Management in London and has also worked for the British Government as an Analyst with the DTI. Alex holds a BSc (Hons) in Mathematics & Statistics and has lived in Asia since early 2001.
Asia's core attraction to global allocators is that there are some world class managers who typically still have capacity.
Allocating to a hedge fund manager is the result of a search for talent allied with capacity, and this is no different in Asia. But global allocators looking to managers in Asia will find some different characteristics, some driven by the youth of the industry, some by the nature of the underlying capital markets, and some cultural.
KBC Alpha Asset Management is the Fund of Funds division of KBC Alternative Investment Management. The two key principals, Neale Safaty and David Walter have 20 and 17 years expertise in Japan & Asian equity and equity-linked capital markets that includes broking, risk-management, trading and direct experience in setting up and running Asian hedge funds.
HT Capital was established in 1997 and is owned by Ophelia Tong and Karl Hurst. Tong is the fund manager and has been running it since January 1999. The HT Asian Catalyst Fund is the only fund that HT Capital runs.
HT Asian Catalyst Fund is an Asia excluding Japan, long/short equity hedge fund. Stock selection is described as based on fundamental valuation grounds with technicals being used for market timing. Company visits are extensive and important. The Fund currently has USD34.7 million in assets and is +0.42% ytd as of May 01 2003.
Graeme Sinclair is Head of Japanese Equities at Aberdeen Asset Management Asia Ltd. and runs the Aberdeen Japan Absolute Return Fund, a Japan only equity long/short hedge fund which launched in October 2002. Aberdeen Asia runs approximately US $5 billion in long only assets. It is based in Singapore. Mr. Sinclair wrote the following article on the Japanese markets and the Aberdeen Japan Absolute Return Fund.
The following article was produced by Wayne Lau, a Director of the Leading Assets United Fund (LAU Fund). The LAU Fund is an equity long/short Asia excluding Japan Fund which focuses on value investments throughout the ASEAN and North Asian regions. Mr. Lau is based in Singapore
Ho Tian Yee is the CIO and oversees all investment management decisions at Pacific Asset Management. He is assisted in this by a four person investment team. Pacific Asset Management Ltd was founded in Singapore in 1995 by Ho, the major shareholder. Ho and his partners own 89% of the equity, with the balance held by Pacific Investment Management Company of the US. Prior to establishing the company, Ho worked for Bankers Trust in Singapore where he was employed for 19 years.
The Jade Japan Fund was launched in June 2000 and is managed by Dominic McEwan, who joined Jade in May 2001. He has over 15 years' experience in the Japanese markets, most recently as a director of Bonfield Asset Management, where he was one of the inaugurators of its Japanese funds. Prior to Bonfield, Mr. McEwan was head of Japanese equities at Commerzbank and a senior vice president at Jefferies International.
Tagged on the end of a proposal to issue ETFs in Taiwan was a hidden gem. The Securities and Futures Commission (SFC) for the first time indicated that they would examine and hopefully implement institutional stock lending and possibly borrowing through a yet-to-be-established clearing house. This change would be enacted through administrative amendments and not be required to touch the floor of the divided Legislative Yuan. The Ministry of Finance (MoF) would simply convene a committee to debate the changes and the SFC would announce the conclusion in the form of an amendment to the appropriate securities law.
Prologue: The Beginning of the Year for Asia
Back in January 2002, the consensus view on Asian markets was remarkably positive - the military action against the Taliban in Afghanistan was efficiently coming to a close, the U.S. consumer was leading the general economy out of the 2001 recession, Korean exporters and domestic consumption were steamrolling ahead and Asian equities were still trading at historically low p/e ratios even after the market bounce in the 4Q of 2001.
Reflections on 2002 and Prospects for the Coming Year
Wong Kok Hoi is the Managing Director and Chief Investment Officer of APS Asset Management based in Singapore. He has been the lead manager of the APS Asia Pacific Hedge Fund since its launch in April 2002. Prior to establishing APS, Mr. Wong was employed by Citibank and the GIC in Singapore. He has 20 years of investment experience. The APS Asia Pacific Hedge Fund is an Asia including Japan, equity long/short fund. It was up 20.26% for the year 2002.
The State of Hedge Fund and Fund of Funds Industries
Investor Select Advisors www.investorselectadvisors.com is a fund of hedge funds advisor, managing assets in 9 multi-manager portfolios primarily on behalf of institutional investors and distributors. It has in excess of US$340 million in assets under management, allocated to 57 hedge funds globally and over a dozen in the Asian time zone. Its 15 staff members include a research team of 6; 3 are located in Asia.
Perhaps the most surprising thing about the nature of the hedge fund market in Europe is its lack of concentration. This is partly because it is made up of a variety of distinct buying groups (fund-of-funds, family offices, financial institutions, private banks, etc) and partly due to the sheer number of participants. In the long-only equity industry perhaps 90% of the money is managed by the top eight big global names. In the alternatives sector, we estimate that in London alone there are up to 200 individual organisations with an interest in Asia hedge funds. Geneva has a similar number of hedge fund investors; and then there are Zurich, Paris and the other capital cities of Europe.
The emergence of the hedge fund sales desk among the region's stockbrokers raises questions that are not answered merely by embossing Hedge Fund Sales on someone's business card, even if that individual is intimately aware of how hedge funds operate. I have been examining these questions recently while building a hedge fund training business, tapping into my ongoing conversations with hedge fund managers themselves and memories of life as a sell-side equity analyst.
The Asian hedge fund industry is still in its infancy, but the last twelve months have been a period of hectic growth. We expect dedicated Asian hedge fund assets to grow by 40% this year from US$14 billion to US$20 billion. The increase will comprise an estimated US$5 billion of net new money and US$1 billion through performance. In addition, we estimate that managers have a further US$4 to 5 billion of hedged strategy assets in managed accounts. The number of funds is likely to increase from 160 in January 2002 to 250 by the year-end.
Major market characteristics of the fund of funds market in Asia are:
The fund of funds industry has grown exponentially since the first fund, Leveraged Capital Holdings, was launched in 1969. There are currently estimated to be between 1,200 to 1,500 funds of funds globally, most of which were launched in the past decade. The first Asia-specific fund of funds was launched in 1993; it is called Asian Capital Holdings and run by the same group (LCF Rothschild Asset Management) that manages Leveraged Capital Holdings. There now appear to be between 30 and 35 Asia/Japan-exclusive funds of funds. However, most of these new funds of funds have assets below US $100m.
Woon Lim manages the Bali Pacific Fund (Cayman) from New York with Thomas Murtha. Woon Lim, an ex-broker, spent 11 years with Robert Fleming and four with HSBC Securities on their Asian sales desks in New York. The fund was launched at the start of January 2002. The Bali Pacific Fund was 0.5% for August 2002 and is 1.0% YTD at the end of August.
David Lee runs the Ferrell Asia fund, managed by Ferrell Asset Management Pte Ltd, which was established in Singapore in 1999. David Lee is the MD and CIO. He has more than 15 years' investment experience, having previously headed Fraser Asset Management. The company has US$25m under management, all of which is managed on an absolute return basis. The Ferrell Asia Fund has US$5m of assets. The Ferrell Asia fund was 0.1% for August 2002 and is 3.4% YTD at the end of August.
The following article takes a look at who is buying hedge funds in Asia. The intention is to give an outline of the market, and to show where there are opportunities for those in the hedge fund business to sell their product. However, a major issue all purveyors should be alert to, is whether they have the selling skills necessary to succeed.
The convertible bond market in Asia is not so much in a perfect storm but in a perfect calm; new issues have dried up and there is an overall lack of liquidity in the convertible bond market. However, given the horrible state of the equity markets, it's a good sign that companies aren't issuing converts. If they were, it would be a sign of desperation; such as AMP's recent issue in Australia. Yet, this lack of liquidity and new issuance combined with distressed share prices has implications for some strategies.
David Webb founded Wellam Investment Ltd. in March 2000, the firm is based in Hong Kong. Prior to establishing Wellam, Webb was MD and head of Asian equities at Chase Asset Management in Hong Kong since 1992. David currently runs the Hidaro Fund, a Japan equity long/short fund employing both a relative value and directional strategies. David is supported by Hitomi Sugino who previously worked with David at Chase and has been in the Japanese securities market since 1982. The Hidaro Fund was launched in February 2001, prior to which David and Hitomi were running a segregated account with the same strategy. The Hidaro Fund was -1.64% for July 2002 and is +2.70% YTD at the end of July.
In the third quarter of 2002, it is expected that Hong Kong retail investors will be permitted to buy hedge funds. Recognising increasing retail interest in alternative investment, Hong Kong's Securities and Futures Commission (SFC) has released guidelines for authorisation of retail hedge funds. This marks a recognition by the Hong Kong authorities of growing worldwide interest in the sector.
The pace of Hong Kong's race to put hedge funds onto the retail market is slowing. Although a small, but still significant queue has formed to register products, some unexpected potholes have appeared as managers, lawyers and the regulators attempt to reconcile differing requirements. That there would be teething troubles was seen as inevitable, given the pioneering aspect of the Securities and Futures Commission's initiative in opening the way for hedge funds to be offered to the wider public. The SFC was having to set standards that would allow freedom of fund management while ensuring maximum investor protection. No precedent was available, as in other jurisdictions hedge funds remain exempt products, although Singapore has also taken steps to regulate the public offering of the vehicles.
Zaheer runs the LG Asian Plus Fund and has been with LGM since 1995. He has been involved in managing the fund since inception and has taken over full responsibility since June 2000. He is a graduate of Case Western Reserve University and has a MBA from Indiana University.
After the disastrous market conditions in 2000 and the first nine months of 2001 pushed Asian hedge funds down, the last quarter of 2001 proved a nice rebound for the industry. Managers made money throughout the region, from playing the falling yen in Japan (either outright US dollar long or purchasing exporters) and buying bank shares in Korea, to domestic plays in Southeast Asia and Hong Kong/China.
Two recent transactions - Pioneer's purchase of Momentum and Man's acquisition of RMF - have highlighted the issue of valuations of fund of funds companies.
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.
We asked 16 managers, based around the world and overseeing absolute return Asia Pacific strategies, their views of where is the best location to establish a hedge fund. We gave each of them the same 12 questions (reproduced below), which centered on the investment process and capital raising. Their answers were remarkably similar, suggesting that there may be a clear formula which new, and arguably some established, managers should follow.
It has become apparent in the last few months that Asian focused hedge funds are hot. Sitting in Asia, this is evidenced by the rate at which the more established funds are closing, and the facts that several new funds are being created every week and that a long queue of Asian fund of fund products is in the pipeline. What is not so evident are the underlying causes of this sea change.
After no-doubt considerable soul-searching, Hong Kong's Securities and Futures Commission (SFC) finally published in early May the guidelines which it will follow in determining whether a hedge fund will be authorised for public sale. This determination came eleven months after the Monetary Authority of Singapore (MAS) released its own standards. While there are similarities, the hurdles set by the SFC are much higher.