New Asia Hedge Funds Raise the Highest Amount Since 2007

Asian hedge funds started by both new and existing managers raised $4.43 billion last year, the highest amount since the industry peaked in 2007, according to a survey by trade journal AsiaHedge.

The average size of the 58 new Asian hedge funds set up last year jumped to $76.4 million, almost twice the $40 million in 2010, AsiaHedge said in an e-mailed statement today. New Asia hedge funds raised a record $7.8 billion in 2007, it added.

New funds in the region benefited from investors reallocating capital from existing pools in a year of closures, “flat” performances and higher entry barriers, said Aradhna Dayal, head of Asia for HedgeFund Intelligence, the London-based data provider that publishes AsiaHedge.

Hedge fund liquidations in the third quarter last year reached the highest level since the final three months of 2008, according to a report released this week by Singapore-based data provider Eurekahedge Pte. Eurekahedge Asian Hedge Fund Index lost 8.5 percent last year, more than twice its global gauge.

“The reality is not all of it is new capital flowing into Asia,” Dayal said in the statement. “After a hiatus of almost two years, few highly regarded traders, hedge fund managers finally succeeded in launching their own ventures last year, which gave many an international investors an opportunity to recycle or trade up their Asia allocations.”

Multistrategy Funds

New Asian hedge funds also benefited as U.S. institutions began allocating capital to the region, AsiaHedge said.

“While historically most large launches have resulted from a bank prop trading or manager spinouts, launches in the coming year will come from global hedge fund firms launching Asia dedicated strategies as well as mainland China managers setting up in Hong Kong,” Dayal said.

Asian multistrategy hedge funds started last year raised $2.7 billion, becoming the largest new fund category for the first time, AsiaHedge said. Some of the region’s biggest new starts during the year fell into the category, including Azentus Capital Management Ltd., led by former Goldman Sachs Group Inc. proprietary trader Morgan Sze, and Myriad Asset Management Ltd., helmed by Carl Huttenlocher, former Asia head of Highbridge Capital Management LLC.

Hong Kong is the largest center for new Asian funds, with 20, or 34 percent, of the new ones based in the city. Singapore trailed with 17 new funds, AsiaHedge said.

Hedge Fund Closures

Hedge fund startups exceeded closures in the first half of last year, according to Eurekahedge. In the second half, liquidations spiked up amid investor withdrawals and negative performances, it added.

Closures also rose because 65 percent of Asian hedge funds are below their high watermarks, the historical peak fund value above which they can charge performance fees, Eurekahedge said.

About 42 percent of Asian hedge funds managed $20 million or less by December, a 13 percentage-point increase over the end of 2007, according to Eurekahedge.

“Heavy redemptions during the financial crisis, along with performance-based losses, resulted in a high number of larger funds shrinking in size to fall into this category,” according to the Eurekahedge report. “Although startup activity in Asia ramped up in 2009 and 2010, many new launches could not attract capital and remained in the smallest category.”

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