Asian hedge funds hunt for treasures overseas

By Nishant Kumar
HONG KONG | Tue Jan 18, 2011 4:37am EST
HONG KONG (Reuters) - Asian hedge funds, starved for capital since
the financial crisis in 2008, are beginning to make a tactical
sojourn to markets abroad, directly chasing clients in the United
States and Europe to gather the elusive assets.

The move, vital for their survival as most of the assets into the
Asian hedge funds are sourced from the two regions, comes after
global players cornered much of the flows last year given their large
asset base and proximity to institutional investors.

It also shows the growing confidence of Asian managers who, armed
with a stellar performance in 2010 and 2009, are ready to commit
capital and compete for assets with the big guns.

"How much of the capital that is really being raised by Asian
managers is coming from Asia? Virtually all that money comes from
Europe and America," said Mark Wightman, head of asset management
strategy for Asia-Pacific at specialist technology group SunGard.

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BNY Mellon expects strong demand for Asian hedge funds in 2011

Institutional demand for emerging market hedge funds in 2011 is set to
rise if corporate government practices become more robust and provide
higher levels of transparency, predicts BNY Mellon.
BNY Mellon said it expects a boom in institutional demand for emerging
market alternatives in 2011 if corporate government practices develop
in the region.

Until recently investors have been wary of emerging markets due to
volatility issues. This is particularly true of Asian markets. The
HFRI Emerging Markets: Asia ex-Japan Index posted returns of 34.14% in
2007 which then nosedived to a negative 33.48% in 2008.By contrast in the third quarter of 2010, the index gained 9.3%
through October, outpacing the 6.8% gain of the broad-based HFRI Fund
Weighted Composite Index, lending investors greater confidence to
invest in the region.

BNY Mellon said the global low interest rate environment is
stimulating demand for alternatives in emerging markets, particularly
in Asia.

"The global low interest rate environment is driving institutional
investors and pension funds to seek alternative sources of returns,
driving an increase in appetite for alternatives in emerging markets,
especially in Asia," said Andrew Gordon, head of BNY Mellon's
alternative investment services.

"Large institutions, especially those in Asia... are focusing an
increased degree of attention on hedge fund opportunities with
increasing numbers of investors making their first investments in the
alternatives space in the region and this is a trend that is expected
to continue well into 2011," he added.

These institutions include sovereign wealth funds, pension funds and
life insurance companies seeking better returns and portfolio
diversification.

Gordon believes corporate governance practices will determine which
hedge fund institutions decide to allocate to, listing the funds'
investment track record, the business and operational track records of
fund managers and the level of transparency they can provide to
investors as the key deciding factors.

"We believe we will be seeing a more robust outlook and increased
capital raising activities in those Asian hedge fund managers who have
invested or are willing to invest in institutionalising themselves...
building up the infrastructure of their business for greater
transparency, corporate governance and risk management," Gordon
commented.

As a result the amount of time and resources invested in due diligence
procedures "is likely to accelerate in 2011 as a number of
high-profile funds folded during the first half of 2010 and a
multitude of insider trading cases emerged in the latter half", he
said.

In late November 2010 the US Federal Bureau of Investigation (FBI)
raided the offices of three hedge funds - Diamondback Capital
Management, Level Global Advisors and Loch Capital Management - as
part of a wider investigation into insider trading.

Recognising institutional demand for excellent corporate governance
"will eventually and effectively differentiate winners from losers in
the marketplace, specifically for those smaller hedge funds from the
region", according to Gordon.

According to Hedge Fund Research nearly two-thirds of capital invested
in Asian-focused hedge funds goes to equity hedge strategies. In the
overall hedge fund industry, equity hedge represents less than one
third.

Hedge Fund Research data showed China is the principal location for
new funds, serving as the base for nearly 25% of all Asian hedge
funds.

BNY Mellon is a global financial services company with $24.4 trillion
in assets under custody and administration and $1.14 trillion in
assets under management.
Source: HedgeFundsReview.Com

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Size acts as barrier to growth of Asian hedge funds

By Nishant Kumar and Kevin Lim
HONG KONG/SINGAPORE | Thu Dec 30, 2010 3:21am EST
HONG KONG/SINGAPORE (Reuters) - Two smaller Asian hedge funds that
have bet on Thai and Southeast Asian stocks have made a killing this
year, racking up more than 80 percent gains and ranking among the
world's 100 top-performing hedge funds.

The Thai Focused Equity (Class A) and Albizia ASEAN Opportunities
funds, however, have received only a trickle of fresh inflows
compared to the cash that global investors have been pouring into
their larger rivals in Asia.

The fight for assets is likely to extend to 2011 as investors
continue to shun smaller funds. Rising compliance costs will also
crimp their ability to turn a profit and make it tougher for
start-ups in Singapore and Hong Kong to grow.

The reluctance of institutional investors to park assets in smaller
players could stymie the development of the $125 billion Asian hedge
fund industry since small hedge funds have often been the source of
innovative ideas in the West.

"It's been very difficult to raise money," said Jeep Chatikavanij,
chief investment officer of Hunters Investments, whose $70 million
Ton Poh Thailand Fund was up nearly 70 percent up to November in
2010, putting it in the third spot among the 11 Asia-themed funds on
Lipper world's top-100 hedge funds.

"Largely big hedge funds have been attracting money."
Reasons cited by institutional investors for not allocating money to
smaller funds include uncertainty as to whether managers can
replicate the strong gains they showed in the past as well as
concerns about the quality of risk management.

Even if a small fund has performed well, there are doubts if the
strategy can continue to work following a surge in assets.
"Clients typically want a $100 million minimum," said Christophe
Belhomme, chief investment officer of FundQuest, a BNP Paribas unit
that manages fund-of-funds.

Asian funds are much smaller than their Western counterparts.
About two-thirds of the region's managers have $50 million or less in
assets, according to Singapore fund-tracker Eurekahedge, keeping them
out of the radar of the influential institutional investors who
contribute the most to the flows into the industry.

SIZE MATTERS
Over the years, investors have preferred bigger players in Asia, with
the trend intensifying in 2008 when a large number of small funds
were forced to close due to losses and redemptions.

However, while the money has started coming in and global players
show interest in setting up operations in Hong Kong or Singapore, the
regulatory environment and higher operational standards demanded by
institutional investors continue to pile costs on the region's mostly
smaller and younger funds.

Under proposed rules in both the United States and Europe, hedge
funds in Hong Kong and Singapore could soon be forced to adhere to
Western regulations as well as rules set by domestic authorities,
hurting smaller Asian funds in particular by increasing both the cost
and complexity of their operations.
Source: Reuters.Com

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