Morgan Stanley In Talks to Fund More Asian Hedge Funds Start-Ups This Year

More institutions and wealthy individuals are looking to provide startup and expansion capital to profit from new Asian hedge funds and help them expand, Morgan Stanley (MS) prime brokers said.

The New York-based bank is helping negotiate several opportunities for investors to give money to new hedge funds for a share of their fee revenue and deals in which they will provide capital to expand assets across Asia, said Hugh Abdullah, its Hong Kong-based head of capital introductions in the region. In demand are event-driven funds and equity long-short managers who bet on rising and falling stocks, he said.

“True hedge fund talent is a scarcer resource out here,” said Abdullah in an interview yesterday. “People always want to find the next winner.”

Investors added $3.6 billion of capital to Asia-focused hedge funds in the first three months, the largest quarterly inflow they have attracted since Chicago-based Hedge Fund Research Inc. started to track such data. Managers in the region are courting seeders and those who can provide so-called acceleration capital because the $88 billion Asian industry is still hovering at 79 percent of its 2007 size, even after global hedge fund assets hit a record $2.02 trillion by March, according to HFR.

Investors provide seed capital to new hedge funds typically in exchange for a share of their fee revenue and sometimes an equity stake in the business. Acceleration capital helps small managers which have been in operation for a few years to expand assets to a size that could attract institutional capital.

Raising the Odds

“If you can find a very good manager in Asia, and they’re of institutional quality, and you build up the right business around them, the probability of their success of raising additional funds is usually a little bit higher,” Abdullah said.

Growth in assets in the region has been concentrated in a small group of managers, Abdullah said.

“In Asia, a number of funds are entertaining using a seeder to boost their assets to the $50 million to $100 million level just to be viewed as being more investable by other investors,” Abdullah said.

Blackstone Group LP (BX)’s $150 million seed capital helped former Citadel LLC trader Nick Taylor to start his own Senrigan Capital Group Ltd. The Hong Kong-based event-driven fund -- which wagers on securities affected by mergers, acquisitions, reorganizations, and asset spinoffs -- in April became the first Asian hedge fund startup since 2009 to reach $1 billion in assets, two people with knowledge of the matter said then.

Scouting Opportunities

Azentus Capital Management Ltd., a hedge fund run Morgan Sze, a former global head of Goldman Sachs Group Inc. (GS)’s principal strategies proprietary trading, started trading on April 1 after raising $1.06 billion, the most by an Asia-based hedge fund startup since at least 2007, said three people familiar with the fund earlier this month.

There are a mixture of specialized hedge-fund seeding companies, funds of hedge funds and high-net-worth individuals from the U.S., Europe, and to a lesser extent from Asia, scouting for such opportunities, Abdullah said.

The deals Morgan Stanley is helping to negotiate involve investments ranging from $30 million to more than $70 million, Abdullah said, declining to identify them as the talks are confidential.

“You are starting to see certain people offering much larger tickets,” he said. “However, there are only a handful of groups which can realistically write tickets of $100 million plus.”

Blackstone

Blackstone recently raised $2.4 billion for its second seeding fund, the industry’s biggest. Goldman Sachs has spent the past year trying to attract clients for a similar pool. Reservoir Capital Group, Larch Lane Advisors LLC and PineBridge Investments LLC also are marketing new funds for such investments.

Pulse Capital Partners LLC, a U.S.-based provider of seed and acceleration capital, announced earlier this month it was backing new Asian event-driven fund Ardon Capital Management Ltd. The amount of Pulse’s investment wasn’t disclosed in the statement.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

• Facebook Share
• LinkedIn
• Google +1
• COMMENTS
• Print
• QUEUE