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Asia Rising Attracts Hedge Funds From Algebris to Soros Betting on Revival

When a magnitude-9 earthquake struck Japan on March 11, Ivan Vatchkov, who moved to Singapore from London last year to run the Asian assets of Algebris Investments LLP, adjusted the hedge fund’s bets within minutes.

“There have been a number of occasions when being here has made a critical difference,” said Vatchkov, the chief investment officer at the Asian unit of London-based Algebris. “You’re in a better shape to react to events in real time.”

Vatchkov is a product of the renewed focus on the world’s fastest-growing region as global hedge funds reverse their 2008 retreat from Asia, when markets were roiled by the collapse of Lehman Brothers Holdings Inc. Whereas satellite offices with little decision-making influence were the norm pre-crisis, global firms are now committing to three-to-five-year plans as Asia becomes the “destination for and source of capital,” said Ho Han Ming, a Singapore-based partner who advises hedge funds at law firm Clifford Chance LLP.

“We’ve seen the first wave of managers opening up,” Ho said. “There are still people considering making the move, but the first-mover advantage has been taken.”

Hong Kong and Singapore have been wooing hedge funds as the U.S. and European Union have stepped up regulation. Singapore is set to become the second-largest global asset management center by 2025 after New York, with the growth in public and private capital available in Asia and more regulation in the U.S. and Europe, PricewaterhouseCoopers LLP said in a report last year.

Soros, Fortress

Global firms such as New York-based Soros Fund Management LLC and Fortress Investment Group LLC (FIG) are setting up shop in Asia. They are reversing the pullback by managers including Blackstone Group LP (BX) and Och-Ziff Capital Management Group LLC (OZM) in the wake of the financial crisis.

“Those that have been able to navigate the financial crisis in Asia well -- that’s a reflection of the larger managers -- recognize that there are opportunities through crises,” said Tim Rainsford, the Hong Kong-based managing director of Man Investments in Asia. “Today in Asia you really have to show face. By showing face that means remaining and showing commitment to markets. The managers that do that will then attract good investors.”

Investors allocated more than $3.6 billion in net new capital to Asian hedge funds in the first quarter, accounting for only 11 percent of the $32 billion in new capital given to hedge funds worldwide, according to Chicago-based Hedge Fund Research Inc.

Is Bigger Better?

The largest 20 percent of funds oversee almost 80 percent of Asian hedge-fund assets, up from about 73 percent in 2005, Eurekahedge said in a September report.

That may well change as global funds raise Asia’s profile and investor interest in the region eventually spills over to locally based managers, said Clifford Chance’s Ho.

“That’s when the regional managers will hopefully get airtime,” he said. “When investors reach out directly to local managers, this would provide more transparency to a region which may continue to be viewed by some as the still slightly exotic Far East.”

Och-Ziff’s OZ Asia Master Fund fell 31 percent in 2008. The size of the fund dropped to $1.5 billion last year, from $2.4 billion in 2008, even as it returned 34 percent in 2009 and 10 percent in 2010, according to its annual report.

The Artradis Barracuda Fund, run out of Singapore, fell almost 17 percent last year and about 14 percent in 2009, according to data compiled by Bloomberg. Artradis Fund Management Pte, which oversaw about $800 million as of Dec. 31 compared with about $4.9 billion in 2008, closed down in March and returned money to investors after it lost money from wagers on price swings in the last two years.

Room for All

The Amoeba Capital Asia Fund, which closed in 2010 as its assets shrunk to $135 million from a peak of $750 million, gained 5.1 percent last year through August. The Singapore-based firm bet on rising and falling stocks in Asia outside Japan.

The tough asset-raising environment for smaller managers contributed to about 100 Asian hedge fund closures last year, according to Eurekahedge.

The increasing number of global hedge funds is unlikely to crowd out smaller local managers, said Ng Nam Sin, assistant managing director of the Monetary Authority of Singapore, the country’s regulator.

“There will always be room for large and niche players as long as they continue to add value to investors,” he said.

Asia-focused hedge funds rose 8.6 percent in 2010, underperforming the 10.9 percent average gain by global peers, according to Eurekahedge Pte, a data provider in Singapore. This year, Asia funds returned 2 percent, compared with the average global industry gain of 2.8 percent.

Asia Expansion

About 25 of the biggest global hedge-fund firms are seeking to expand in Asia, according to a Credit Suisse Group AG report last year. About 75 percent of the top 100 global hedge funds, ranked by Alpha Magazine based on assets managed, will likely have a presence in Asia, according to the Zurich-based bank’s prime brokerage unit.

DiMaio Ahmad Capital LLC, a New York-based based asset manager specializing in credit markets, opened an office in Singapore, according to the Accounting and Corporate Regulatory Authority, which regulates businesses in the city-state.

Boston-based Sirios Capital Management LP, co-founded by former MFS Investment Management portfolio manager John Brennan, and Minneapolis, Minnesota-based Whitebox Advisors are also seeking to open offices in the city-state, according to filings with the regulator.

In the Zone

Fortress’s Adam Levinson, co-chief investment officer of global macro funds, moved to Singapore from New York in January to lead the firm’s Asia-specific macro-trading activities from the newly opened office. It started an Asia-focused macro hedge fund in March which rose 3.5 percent that month. Asian macro funds on average gained 1.9 percent in March, according to Eurekahedge.

Fortress aims to increase its team in Singapore to about 25 people from 20 by the end of the year, Thomas Kang, president of Fortress Asia, said in April. The firm closed its Hong Kong office at the end of 2008.

“Being in the time zone is something which is recognized as being beneficial,” said Rainsford of Man Investments, a unit of Man Group Plc (EMG), the world’s biggest publicly traded hedge fund. “In the years gone by, hedge funds would have tried to capture those opportunities by running a night desk or night trading operations.”

Proven Resilience

GLG Partners Inc., which Man acquired in October, obtained its Hong Kong trading license in December and moved Andrew Thatcher to the city from London to develop its Asian business.

The Asia-Pacific region overtook North America last year as the world’s biggest derivatives market amid increasing demand for futures and options contracts in the region’s fast-growing economies, according to data from the Washington-based Futures Industry Association.

China is encouraging greater use of the yuan for international trade and investment to reduce reliance on dollars. Billionaire Li Ka-shing’s real estate investment trust raised 10.5 billion yuan ($1.6 billion) in April in Hong Kong’s first stock sale in the Chinese currency.

Algebris’s global financials hedge fund, which invests in the equity, debt and derivatives of financial and real estate companies, has been increasing its Asia holdings, said Vatchkov. Algebris manages $1.3 billion.

“The importance of the region to global growth has increased and the resilience of the region after the financial crisis has been proven,” he said. “People should be less skittish about staying in the region now; as far as I’m concerned, I’m certainly staying.”

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.

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

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