UBS O’Connor, the UBS AG (UBSN) unit with $5.2 billion of assets, plans to open its first Asia-focused hedge fund to investors later this year, said two people with knowledge of the matter.
The fund, which started trading in August with internal money, is managed by Singapore-based John Bradshaw and David Perrett in New York, said the people, who asked not to be identified because the information is private. Rob Stewart, a Hong Kong-based UBS spokesman, declined to comment on the fund.
O’Connor is among hedge-fund units of global banks to start their first Asia funds this year, answering investor demand for products focused on a region with faster economic growth, and diverse and often less efficient markets. Goldman Sachs Investment Partners is raising capital for a new Asian fund, two people with knowledge of the matter said last month.
“Asia has the highest growth in emerging markets and improving liquidity, meaning more opportunities to trade from the long and the short side,” said Stephane Pizzo, managing partner at Singapore-based investment adviser Lotus Peak Capital Pte. “It’s only natural for smart traders and investors to go where the opportunities are.”
The MSCI Asia-Pacific Index has advanced 7.6 percent this year, trailing the MSCI World Index’s 16 percent climb. The Asian gauge is trading at about 13 times earnings and 1.4 times book value, according to data compiled by Bloomberg. The world index trades at 15 times earnings and 1.9 times book value.
“In terms of price-to-book ratio, Asia ex-Japan trades at a level comparable to Europe, while offering better growth, better demographics and larger inefficiencies,” Pizzo added.
The O’Connor fund will focus on fundamental long-short tactical trading, the people said.
Equity long-short funds bet on rising and falling stocks. Relative-value traders seek to exploit pricing discrepancies between securities. Tactical trading refers to shorter-term trading triggered by events or technical indicators.
The 10 people working on the O’Connor Asia fund are based in Hong Kong, Singapore and the U.S., said the people. They have traded for the flagship O’Connor global multistrategy fund since April 2012, they added.
Bradshaw and Perrett have worked together since 2005, previously on the proprietary trading team of the investment bank, said the people. They both have more than 20 years’ trading experience, including more than 12 years focused on Asia, they said.
Asian hedge funds drew more than $3 billion of new capital in the second quarter, pushing total industry assets past $98.4 billion, the highest since 2007, according to Chicago-based data provider Hedge Fund Research Inc.
Investors added $2.2 billion of capital to equity hedge funds focused on the region in the quarter, according to HFR. The inflows came as U.S. Federal Reserve policymakers signaled in May that the central bank may reduce bond purchases, triggering capital outlfows from emerging markets and a month-long selloff in global equities.
“In spite of economic uncertainty, the opportunity set, access to markets and breadth of available instruments to trade continue to increase,” said David Walter, a Singapore-based director of fund-of-hedge-funds manager Pacific Alternative Asset Management Co. “This is attractive to experienced hedge-fund players. Institutional investors are realizing this and looking for a safe pair of hands.”
The Eurekahedge Asian Long-short Equities Hedge Fund Index gained 13 percent this year through September, outperforming the 4 percent return of the Singapore-based data provider’s global hedge-fund gauge.
UBS, Switzerland’s largest bank, is overhauling O’Connor’s structure after a clampdown on cash bonuses helped spur trader defections. The lender changed its compensation in February, paying some bonuses in bonds that only vest after five years and can be wiped out if the firm has a capital shortfall.
At least seven portfolio managers have left O’Connor this year to join hedge-fund firms, people with knowledge of the matter said in May. In June, O’Connor began cutting 16 of 46 jobs at an equity fund, while adding traders focused on corporate bonds, said a person with knowledge of the matter.
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