Singapore Long-Only Hedge Funds Defy Capital Rut: Southeast Asia

Managers of long-only funds in Singapore that invest mainly in Asian stocks are winning client money, shrugging off difficulties in raising capital faced by smaller hedge funds in the region.

Assets under management of such funds in the city-state that manage less then $500 million surged 410 percent to about $990 million from the end of 2010 through November, according to an estimate by research firm GFIA Pte. That compares with a 72 percent increase for all long-only funds focused on Asia, according to data provider Eurekahedge Pte. Firth Investment Management Pte and Lumiere Capital Ltd. are among those that are seeing increased interest, the managers said.

The long-only funds in Singapore, Asia’s second-biggest hedge-fund hub, are becoming more popular against those that also bet on falling prices because of lower costs and lighter regulations. Singapore eclipsed Hong Kong with more assets among its long-only funds in 2012, according to Eurekahedge.

“Singapore as a hub for the long-only boutiques has been pretty successful” said Peter Douglas, principal of Singapore-based GFIA. “The fact that Singapore, certainly historically, allows you to start small and then grow slowly is a significant advantage for the business model of these guys.”

Long-only funds are those that bet on rising stock prices, seeking undervalued securities, with some reducing volatility and downside risks by holding cash or other assets such as fixed income, according to Eurekahedge.

Singapore’s Growth

More than half of Asian long-short equity hedge funds that began trading with less than $50 million still manage less than that amount after an average of 5.3 years in operations, according to a Citigroup Inc. survey released in December, citing data Eurekahedge.

Assets at long-only funds in Singapore have grown 149 percent to $10.3 billion last year since 2006, according to Eurekahedge. In Hong Kong, assets among such funds doubled to $9.6 billion in the same period, the data showed.

The MSCI South East Asia Index has surged 126 percent in the past five years, outperforming the MSCI Asia Pacific Index’s 69 percent increase in the same period.

Long-short managers may be better positioned amid prospects of rising interest rates, said Adrien Gheur, managing director at APS Asset Management Pte in Singapore.

The U.S. Federal Reserve at its previous gathering on Dec. 18 decided to cut monthly bond buying to $75 billion from $85 billion beginning this month.

Limited Tools

“Investing in a long-only fund can be a straitjacket because you have only a limited number of tools at your disposal,” Gheur said. “With a long-short fund, you have more flexibility.”

APS Asia-Pacific Hedge Fund, which employs a long-short strategy, is up 2 percent so far this month, Gheur said, while the long-only APS Far East Alpha Fund is “roughly flat,” tracking declines in the regional markets. The MSCI Asia Pacific Excluding Japan Index is down 1.8 percent this month.

Growth prospects in the region have driven stocks. The economies in Indonesia and Thailand will expand 5.3 percent and 4.5 percent respectively this year, outpacing a 3.2 percent global growth rate, the World Bank said Jan. 15. Vietnam’s economic growth accelerated to 6.04 percent in the fourth quarter from 5.54 percent in the previous three months, the government said in December. Singapore’s economic growth will quicken to 4 percent next year from 3.6 percent in 2014, according to forecasts compiled by Bloomberg.

‘More Money’

Firth Investment increased its assets to $180 million from $25 million in June 2012, mostly from new allocations, Chief Executive Officer Simon Rigby said.

“We are expecting more money to come from institutional investors,” he said. The Firth Asian Smaller Companies Fund has returned 11.6 percent in 2013, he added.

Lumiere Value Fund, which had a cumulative return of 423 percent over the past five years, has managed to almost triple its assets to $75 million since June 2012, said Wong Yu Liang, Lumiere’s managing director in Singapore. About half of the gains in Lumiere’s assets are due to the inflow of new allocations from investors, he said.

“A couple of institutions have made their first investments into the fund,” Wong said. “Given our track record over the past years, I expect institutional investors to show more interest going forward.”

Integral Capital Pte is seeing more “institutional allocators” approaching the company for potential investments, said Partner Talib Dohadwala, declining to disclose assets or performance because they are private.

‘Bigger Awareness’

“There is a bigger awareness and acceptance by institutional investors in entrusting their money to the absolute-return mindset of long-only fund managers,” he said.

While Singapore has tightened regulations for hedge funds in 2012, it is still easier to start a fund in the city-state than in Hong Kong, GFIA’s Douglas said.

Under the new rules introduced in 2012, fund-management companies with less than S$250 million ($196 million) and serving fewer than than 30 qualified investors can be registered, as opposed to licensed, where regulatory requirements are higher.

Before the change in regime, hedge-fund managers didn’t need a license even if they managed more than S$250 million, unless they had 30 or more qualified investors as clients.

Lower costs to run the funds including office rents is also helping the managers expand their businesses in Singapore, GFIA’s Douglas said. Office rents at a top location cost $163 per square foot a year in Hong Kong last year, 75 percent more than in Singapore, according to a report by Cushman & Wakefield Inc. in December.

“If you choose the right entry point and the right time horizon, Southeast Asia currently offers lots of opportunities for long-only investors,” said David Roes, chief executive officer of Asean Investment Advisors Ltd., a Hong Kong-based asset-management firm that focuses on long-only investments. “And Singapore is the right place from where to run your business.”

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