Asian hedge funds are set to outperform the world in 2012, gaining for the fourth straight month in November as the U.S. Federal Reserve’s low-rate policies boosted credit and stock investments.
Top performers in 2012 include Income Partners Asset Management (HK) Ltd.’s Asian Credit Hedge Fund, GCI Japan Hybrids and Algebris Coco Credit Fund. The Eurekahedge Asian Hedge Fund Index returned 5.8 percent this year through November, outperforming the 4.5 percent return by the index tracking global hedge funds, according to a preliminary report by Eurekahedge Pte, a Singapore-based data provider.
Asian hedge funds, which lagged behind in the first half, are set to beat global peers for the first time since 2009, when they had a record annual return, according to Eurekahedge data. A gauge of Asian fixed-income funds returned 9.9 percent this year through November amid political uncertainty in the U.S. and China, Europe’s sovereign-debt crisis and concerns that inflation is rising in emerging economies.
“Investors are looking for yield globally and fixed-income prices have moved exactly in the right direction,” said Peter Douglas, principal of Singapore-based GFIA Pte, which advises on hedge-fund investments. “We’ve got to be within sight of the end of the credit cycle, whether imminently or 18 months from now, I don’t know, but often the very end of a cycle is when you get the biggest rally.”
Asian hedge funds managed $128 billion as of October, compared with $366 billion in Europe and $1.22 trillion in North America, Eurekahedge data show. Investors have withdrawn about $1 billion this year from hedge funds in Asia, while more than 100 of them have closed and 92 funds have started in 2012 through mid-November, according to Eurekahedge.
Asia funds staged a comeback after the Federal Reserve’s third-round of quantitative easing in September boosted stock prices in the region where more than half of hedge-fund assets are focused on equities.
The MSCI Asia-Pacific Index surged 5.9 percent from Aug. 31 to Nov. 30, double the gain of the MSCI World Index. The Eurekahedge Asia Hedge Fund Index was up 1.5 percent through August, underperforming the 3.3 percent return of the measure tracking global hedge funds.
“After QE3, risk appetite significantly increased and capital flew to risk assets, with Asia being a major beneficiary,” said Theodore Shou, Hong Kong-based chief investment officer of Skybound Capital, a $300 million South Africa-based global asset manager that allocates mainly to hedge funds. “Most Asian managers are long biased and also decided to up-weigh exposure in the past three months, which helped them to outperform global indexes.”
Asia-Pacific governments, agencies, financial institutions and companies sold a record $1.1 trillion of bonds this year, according to data compiled by Bloomberg. Asian high-yield bonds gained 19.6 percent in the first 11 months of the year, according to JPMorgan Chase & Co. indexes. Asian corporate dollar bonds gained 14.7 percent this year, more than the 10.5 percent that corporate debt returned globally, according to Bank of America Merrill Lynch Indexes.
The flagship Asian Credit Hedge Fund of Income Partners returned 16.7 percent this year through Dec. 7, said Francis Tjia, a managing partner at the Hong Kong-based company, which manages $1.06 billion of credit assets. The $400 million fund that focuses on high-yield bonds in the region is headed for the second- or third-best year in its 10-year history, behind the peak performance of 34 percent in 2009, he added.
“When we started off 2012, we were pretty bullish for the outlook of Asian credit,” Tjia said. “You’ve got the zero interest rate world out there. So people are hungry for yield.”
The Prudence Enhanced Income Fund, run by former Deutsche Bank AG proprietary trader Chad Liu, returned an estimated 14 percent this year through November, said a person with knowledge of the fund’s performance. The fund is overseen by Prudence Investment Management, the Hong Kong-based company managing about $400 million.
Among others in Hong Kong, the credit hedge fund of Serica Management Ltd. returned 14 percent in the first 10 months, said a person with knowledge of the performance. Double Haven Capital’s $145 million Asian long-short credit strategy returned about 18 percent this year through November, said a person with knowledge of the returns.
Serica was cofounded in 2008 by Ivan Lee, a former head of fixed-income strategy and analysis at Citigroup Inc., and Ben Miller, who once ran the Hong Kong office of U.S. hedge fund HBK Investments. Prudence’s Liu, Serica’s Miller and Double Haven’s head of distribution Rob Lance declined to comment on their funds’ performance and assets.
In Japan, GCI Asset Management Inc.’s $220 million GCI Japan Hybrids, which invests in securities ranging from stocks, corporate bonds, options and hybrid securities in the country, returned 18.2 percent this year through November, said Naruhisa Nakagawa, who runs the strategy. His global fund, the $23 million Aleutian fund, which invests in similar securities worldwide, returned 31.7 percent in the period, he said.
Investments in credit of companies with strong balance sheets, and shorting equities and credit of industries deemed “overpriced,” such as steelmakers, contributed to the performances in both funds, he said.
Fund raising was limited amid the AIJ Investment Advisors Co. scandal, Nakagawa said. AIJ, a Tokyo-based asset manager, was found to have allegedly lost more than $1 billion of mostly pension money by offering hedge-fund strategies.
“This year, we made money on trades focused on strong balance sheets,” said Nakagawa. “With fund raising, the AIJ incident made investors reluctant to invest in boutique-type managers, but we’re starting to see some renewed interests from local pensions and overseas clients, so we’re hoping things will improve in 2013.”
Global credit hedge funds with a presence in the region also outperformed. The $850 million Algebris Coco Credit Fund, which invests in contingent convertible bonds, or CoCos, that regulators have earmarked as a vital part of bank buffers against future losses, returned a gross 56 percent this year through November, according to London-based Algebris Investments, with $1.1 billion in assets.
Key contributors to performance this year in credit were the hybrid securities of western banks including Lloyds Banking Group Plc, Bank of America Corp., Royal Bank of Scotland Group Plc and Credit Suisse Group AG, said Ivan Vatchkov, the chief investment officer of Algebris’s Asian unit in Singapore.
“High growth interest in credit issued by financial companies is coming from Asia,” Vatchkov said. “Once the regulators approve, there is going to be more issues in Asia.”