Volatility May Help Asia Hedge Funds Double Inflows, Paamco Says

  • Asian hedge funds beat European, North American peers in 2015
  • Paamco says investor allocations to Asia funds may reach 20%

Investors may double their allocations to Asia’s hedge funds over the next five years as they look for ways to navigate volatile markets and the region’s managers beat peers in the U.S. and Europe, according to Pacific Alternative Asset Management Co.

Pension funds and sovereign wealth funds have as much as 10 percent of their hedge-fund investments in Asian vehicles, said David Walter, Singapore-based head of research for Asia at the $11 billion fund-of-hedge-funds, known as Paamco. That proportion will probably increase to as much as 20 percent over the next five years, he said.

The Shanghai Composite Index ended a multi-year bull run in June last year, and has since declined almost 50 percent. The plunge has been accompanied by severe global market volatility, deepening investors’ appetite for hedging strategies that can shield them from big market drops. Hedge funds focusing on Asia, which on average beat benchmarks and counterparts investing in the U.S. and Europe, may be beneficiaries of that demand, according to Paamco.

“A lot of long-only investors have been pretty scared of investing in China and underweight that market,” Walter said. “People are now saying ‘I don’t really go long China, let’s have a look at the hedge-fund space’.”

Sylebra, Tybourne

Sylebra Capital Partners, Tybourne Capital Management (HK) and Pleiad Investment Advisors, firms that have attracted billions of dollars from investors in recent years, were among hedge funds that navigated turbulent markets to post double-digit returns in 2015.

Asia-focused hedge funds returned on average 6.5 percent in 2015, according to data provider Eurekahedge Pte. That compares with a gain of 4.8 percent in Europe and a loss of 0.6 percent in North America. Asia’s hedge fund industry saw net inflows of $6.1 billion last year, according to Singapore-based Eurekahedge, about 8 percent of the global total net inflow of $77 billion.

This year’s rout in China stocks, which has spread across global equity and commodity markets, will prompt some slowdown in inflows as investors pause to digest the swings, said Walter. Still, institutions cannot afford to ignore funds that invest in Asia, a region that has become a bigger part of the global market.

“Asia, and in particular China, is now part of the global investment thesis,” said Walter. “If you are big enough you need to be in it.”

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