Asia Hedge Fund Startups Fall 38% as Big Funds Favored
The number Asian hedge fund startups fell 45 percent in the first half of the year as investors preferred larger funds amid volatile markets, according to Eurekahedge Pte.
There were 60 new Asian hedge funds set up in the first six months of 2011, of which 14 were based in Singapore and 11 in Hong Kong, Eurekahedge said in an e-mailed reply to queries from Bloomberg News. There were 109 Asian hedge funds which started in the first half of last year and 169 in all of 2010, the Singapore-based industry data provider said.
Hedge funds found it tough to raise capital as investors shifted to experienced managers or established firms with steady returns and staff dedicated to risk assessment after the collapse of Lehman Brothers Holdings Inc. in 2008 saw many funds freeze assets. Firms managing more than $500 million received almost 62 percent of the capital invested in Asia-focused hedge funds in the second quarter, according to Chicago-based Hedge Fund Research Inc.
“In this volatile environment, some asset allocators believe they will be safer in large funds with a high pedigree, which makes it difficult for startups with more talented but less known managers to raise capital,” said Frank Brochin, managing director at New York-based StoneWater Capital LLC, which invests in Asian hedge funds.
Azentus Capital Management Ltd., a Hong Kong-based hedge fund set up by Morgan Sze, global head of Goldman Sachs Group Inc.’s principal strategies business, increased assets to more than $1.9 billion, three people with knowledge of the matter said in July. Benjamin Fuchs, who leads the Global Opportunities Group proprietary trading desk at Nomura Holdings Inc., aims to start his own Hong Kong-based hedge fund with at least $400 million, two people with knowledge of the plan said.
The MSCI Asia Pacific Index fell 2 percent in the first six months, after a 14 percent rally last year, as investors became concerned that an earthquake in Japan in March would stall the nation’s emergence from deflation, U.S.’s sovereign-debt would be downgraded and Chinese growth would slow as inflation accelerated. Standard & Poor’s downgraded U.S.’s debt rating on Aug. 5.
The formation of a strong management team is the “main difficulty” of starting a hedge fund, said Roland Thng, a managing partner of Singapore-based Dektos Investment Corp., which aims to start a macro hedge fund by the first quarter of next year.
Thng, previously a currency trader at Oversea-Chinese Banking Corp., teamed up with Mario Manca, a former private banker at Barclays Wealth Management who has experience in risk management and business development, to set up the fund. Thng had attempted to start Dektos as a “one-man shop” a year and a half ago, he said.
“I soon realized that this model doesn’t work,” Thng said. “Having a strong management team will allow regulatory agencies and investors to have strong confidence in the sustainability of the business.”
Asian hedge funds may attract less money in coming weeks from U.S. institutional investors as they wait for a clearer reading of the global economic outlook, according to Pacific Alternative Asset Management Co., which invests in hedge funds.
The MSCI Asia Pacific Index declined 14.5 percent yesterday from this year’s high on May 2 on concern Standard & Poor’s downgrade of the U.S. credit rating to AA+ from AAA could worsen an economic slowdown, the European sovereign debt crisis will spread and China’s steps to stem inflation will slow growth.
Investors poured $600 million into Asian hedge funds in June, even as managers lost about 1 percent that month, according to Eurekahedge. The region’s strategies lost 0.3 percent in the first half, while U.S. funds gained 2.2 percent, according to the data provider.
Asia-focused hedge funds managed $89.5 billion in the second quarter, compared with a peak of $111.4 billion in 2007, according to Hedge Fund Research.
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