Yip Ka-hay, the first Asia-based manager hired by Steven Cohen’s $15 billion SAC Capital Advisors LP, plans to start a macro hedge fund in July to trade currencies, interest-rate securities and equity indexes in the region.
Yip, the founder of Hong Kong-based Bright Stream Capital Management Ltd., will start trading with as much as $25 million of his own money, he said in an interview April 12. He expects additional capital from investors will take Bright Stream Macro Fund’s size to as much as $300 million within 18 months.
The 42-year-old is rejoining the hedge-fund industry after a four-year gap to take advantage of a shortage of Asia-focused funds that bet on macroeconomic trends. Expectation for rising interest rates and repricing of other currencies against the dollar will make the strategy more profitable in the coming years, he said.
“People talk about Asian macro a lot but there are not that many dedicated Asian macro funds out there,” he said, adding that existing funds tend to trade a lot of equities. “There is a niche for someone to focus a specific fund on Asian rates and foreign exchange.”
Macro hedge funds accounted for 1.6 percent of Asian hedge-fund assets in the fourth quarter, according to Chicago-based researcher Hedge Fund Research Inc. Globally, such funds made up 22 percent of the industry assets.
The Eurekahedge Asia Macro Hedge Fund Index, tracking five such pools, returned 3.7 percent in the first three months, the best quarter in three years. Macro is now the fourth-best performing of nine hedge-fund strategies tracked by Eurekahedge in the region, behind funds that bet on corporate events, stocks and arbitrage.
Yip is readying the fund as signs of a U.S. economic recovery raise the prospects interests rates will rise, paving the way for more volatile rates and increased trading opportunities for macro managers, he said.
The dollar is at a turning point as a result of reduced U.S. dependence on Middle East oil, in addition to better economic outlooks, said Yip, who traded dollar-yen for JPMorgan and ran Credit Suisse First Boston’s emerging-markets desk for Asian currencies in Singapore before his hedge-fund career.
“You will see a lot of repricing, whether it’s Asian currencies or in developed markets,” he added.
Several Federal Reserve officials said the central bank should begin tapering its bond purchases later this year and stop them by year-end if the outlook for labor market improved as anticipated, according to the minutes of the March Federal Open Market Committee meeting.
The fund will target an annual return of 10 percent to 15 percent above the London interbank offered rate. As much as 30 percent of its investment will be in equity indexes with the rest split between rates and currencies. It won’t trade single stocks or single-name credit, Yip said.
Yip joined SAC in Hong Kong in December 2007 to run regional macro investments after the Stamford, Connecticut-based hedge fund opened its first Asian office in the city. He left SAC in early 2009 when it decided to downsize non-equity investments, he said. After leaving SAC, Yip managed his own investments.
Before SAC, he was the chief investment officer of the macro strategy at PMA Investment Advisors, a Hong Kong-based hedge-fund company that was acquired by Japan’s Sparx Group Co. in June 2006. He started the PMA Harvester Fund, the company’s dedicated macro hedge fund, in 2007 and also ran such investments for other PMA funds during his more than four years stint, he said. The Harvester Fund returned annualized 10 percent to 27 percent under his oversight, he said.
The yen depreciated to 99.95 per dollar on April 11, the weakest since April 2009, after Bank of Japan Governor Haruhiko Kuroda surprised markets by doubling monthly bond purchases in an attempt to end deflation. The Japanese currency has declined 20 percent against the dollar in the last six months on Prime Minister Shinzo Abe’s pledge to pull the country out of 15 years of deflation.
William Fong, who worked with Yip at PMA, and Joshua So, a former colleague at SAC who is in charge of operations, have also joined Bright Stream, Yip said.