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.
However, the desire among investors for cash liquidity continues to affect the capital raising capabilities of Asian hedge funds. Borne out of the forced redemptions from funds of all types in 2008 to 2009 and reflective of the credit issues faced by investors in the financial crisis, this desire remains a pressure on hedge funds. In addition, some recent investment flows would be characterised as “hot money” investment decisions, not necessarily an approach, which sits well with the investment timeline horizons required by many Asian hedge funds or their investors.
A New Breed of Tools
A corollary of the financial crisis has been the damage suffered to the credibility of some of the traditional tools previously employed by hedge funds to keep investors invested.
However, the investors’ reaction to the employment of such tools may offer some useful pointers to new hedge funds seeking to raise capital in Asia. Indeed, the changing tastes and tolerances of investors have had an effect on the structuring of hedge funds.
For example, redemption gates were originally intended to prevent forced sales of investments in order to meet redemption requests and also to prevent the subsequent overweighting of the remaining unsold portfolio towards less liquid investments. The imposition of redemption gates, however, has caused objections by investors where seemingly used as a defensive weapon by investment managers seeking to prolong the life of the funds rather than to enable the orderly sale at what the relevant manager regarded as appropriate prices.
