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TalkingPoint: Hedge Funds In Asia « Back
September 2012
 
FW moderates a discussion on hedge funds in Asia between Scott Peterman, a partner at Sidley Austin LLP, and Rod Palmer, Global Head of Investment Funds at Walkers Global.



FW: Could you outline some of the key trends you have witnessed in the Asia hedge funds market over the last year or so? In broad terms, how would you describe the recent performance of Asia focused hedge funds?

Peterman: According to Eurekahedge, hedge funds were down for the fourth consecutive month in June, though total AUM had increased marginally. Other reports suggest the contrary, though, stating that allocations to Asian hedge funds decreased markedly during Q2. Eurekahedge also reported that Japanese managers recorded the highest returns among regional mandates while relative value and fixed income strategies outperformed peers in June. We have confirmed among our own client base that hedge funds with substantial exposure to Japanese equities had performed well in relative terms. On the other hand, Japan-focused hedge funds had a net loss in Q2, owing to the performance of the Nikkei. Stock-picking acumen was rewarded while broad exposure to the market was punished. In other markets, interest in China has not been as strong as it was, due to poor performance across the board of the Chinese markets, and perhaps due to political instability in advance of imminent changes in the government. Korea has also not performed well. Of the Asia-focused hedge funds, more of them are now opening offices in Asia, perhaps due to slow growth in their home markets, and a realisation that having a local footprint yields benefits in excess of the costs.

Palmer: So far this year we have seen an increase in assets under management for Asian hedge funds, despite the small dip in the overall number of funds operating in Asia amid some closures. Activity for new fund launches has remained reasonably robust this year, with around 30 to 40 new fund launches in Asia during the first half of 2012, raising some $2bn in aggregate AUM. The typical new fund is closing with an average launch size between $50m and $100m, with multi-strategy comprising the bulk of the funds we are launching in Hong Kong and Singapore, followed by Asian equities. One of the key trends in Asia over the past year or so has been the influx of a number of large global hedge fund players and other high profile launches in Hong Kong. Examples include Brevan Howard’s alliance with CICC Asset Management, Myriad, PCA, Oasis and Azentus to name but a few. By comparison, some of the smaller hedge funds in Asia are finding it tough going, resulting in some wind downs. The main reasons cited are the difficult capital raising conditions and a 'flight to quality' on the part of existing investors, as well as high barriers to entry and poor performance returns in difficult trading conditions. Returns from Asia funds excluding Japan have produced flat to low single digit returns so far this year. Japan proved to be one of the better performing markets in Asia in early 2012 and, as a result, we have seen a recent uptick in new hedge funds for Japanese fund managers.

FW: To what extent have persistent economic troubles in the euro zone and other developed regions helped to increase interest in Asian investments?

Peterman: The continuing reversals and shifts in risk sentiment have made it a difficult investing environment. The ever-shifting economic and political landscape has reinforced the ongoing interest from offshore institutional and private investors for hedge funds that are perceived as relatively stable, core investments opportunities. To the extent investors perceive growth opportunities in Asia, they are interested in investing with fund managers that have demonstrated ability to dampen the higher volatility that characterises many of the markets in Asia.

Palmer: Investor risk aversion levels remain high as a result of the issues in the Eurozone. The associated increase in market volatility, combined with the decline in the global growth outlook is leading to caution on the part of hedge fund investors in Asian markets.
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