Hedge Fund Starts in Asia Drop to 14-Year Low in Turbulent Yearby
Number of launches dropped to 76 last year, Eurekahedge says
Investors shifting more money to larger, established managers
Hedge fund launches in Asia dropped to the lowest in 14 years last year as investors’ preference for big funds and rising regulatory costs converged with a turbulent market.
The number of hedge funds that opened in Asia dropped to 76 in 2015, according to Singapore-based data provider Eurekahedge Pte, down from 117 in the prior year and the fewest since 2001. The number was less than half of the peak in 2010, when 188 new hedge funds set up operations.
“The industry is consolidating hugely,” said Peter Douglas, Singapore-based principal at CAIA Association, a global group for alternative investment education. “Potential managers are realizing that it’s extraordinarily difficult if not impossible to take a small single strategy manager and turn it into a real business these days.”
Funds that did successfully open last year could point to a pedigree. Among those that started in 2015 were Zentific Investment Management, the market-neutral strategy led by former BlackRock Inc. employee Christopher Lee, and Graticule Asia Macro Advisors, a spinoff of Fortress Investment Group LLC overseen by Adam Levinson. Shilpi Chowdhary, a former private banker with Credit Suisse Group AG, started a multistrategy fund and Joseph Sun, the former head of Asia technology investments at Och-Ziff Capital Management Group LLC, opened a long-short hedge fund focused on technology, media and telecommunication companies.
Hedge funds based in Asia, which collectively held $172.2 billion in assets at the end of 2015, are being squeezed by gyrations in markets amid a slowdown in China, as well as declining fees and higher costs to run a business. New entrants are under additional pressure as institutional investors are gravitating towards large firms with established track records, with risk controls and infrastructure that clients deem stronger.
Asian hedge funds with assets of more than $500 million saw net inflows of $5 billion last year, while smaller vehicles attracted $1.2 billion, according to Eurekahedge.
Globally, the average performance fee, the share of a fund’s profit retained by the manager, has trended down from 18.4 percent in 2010 to 16.8 percent as of November 2015, according to Eurekahedge. The management fee, a percentage of a portfolio assets, has declined to 1.56 percent from 1.61 percent.
That pressure on fees has an outsize impact on new firms, as hedge fund startups usually are “more willing to negotiate lower fees to attract seed capital,” according to the latest monthly Eurekahedge report.