Hedge Fund Startups Plummet in Asia Amid Low Returns, High FeesSuzy Waite
Fund launches set for worst year since 2000, Eurekahedge says
Lackluster returns are a ‘worrying’ trend for fund industry
Asia hedge funds are opening at the slowest pace since the turn of the century.
Just 27 new funds started trading in Asia in the first nine months of this year, the fewest since 2000 when 56 funds opened, according to Eurekahedge. It’s the third straight year of declines, and down from 83 new funds last year.
Lackluster returns and high fees in the $2.9 trillion global hedge fund industry have discouraged investors from allocating money to new funds, said Mohammad Hassan, senior analyst at the Singapore-based data provider. Investors have chosen to go with larger, more established managers, typically with assets of at least $500 million, which has hurt newcomers, he said.
“The capital-raising environment for newer launches is quite difficult to put it mildly, and with existing offerings out there returning low-single digits over the last three years investor appetite is quite selective,” Hassan said.
The trend isn’t confined to Asia. Globally, 457 funds opened in the first nine months of the year, down from 876 last year, according to Eurekahedge data.
Hedge funds have been posting returns of less than 5 percent on average for the past three years, a “worrying” trend, Hassan said.
“For smaller players in particular, this places them in a tough spot just on the issue of business viability and income generated through fees to grow the asset base,” he said.
The “2-and-20” fee model that was a fixture in the industry has come under pressure recently as investors have balked at the prospect of paying hefty rates for lagging returns.
About 49 percent of investors in a survey released by data provider Preqin in September cited fees as a key issue facing the global hedge-fund industry in the second half of this year. Around 58 percent of investors said their interests were not aligned with managers’, a number that climbed from 49 percent in June 2015.
Poor returns and low fee income, along with high operational and regulatory costs, make it difficult for would-be hedge fund managers to open their doors, said Peter Douglas, a Singapore-based principal at CAIA Association.
“Investors are demanding that hedge funds are managed by organizations that look like, are resourced like, and charge like conventional money-management firms, with high cost structures and lower fees,” Douglas said. “Returns are a cyclical drag but the organizational issues are structural and unlikely to go away."
Still, there has been a few notable launches in Asia this year. Frank Qian, a former Hong Kong-based portfolio manager at Pine River Capital Management, set up Q Fund Management and is planning on launching a strategy focused on Chinese equities. In July, former GIC Pte senior executives founded Avanda Investment Management Pte with backing from GIC and Temasek Holdings Pte, and planned to launch a multi-asset fund.
Stephen Woo, who led the Hong Kong office of Gruss Capital Management until it closed earlier this year, has started his own event-driven hedge fund, Lakeville Capital Investors, according to a person familiar with the matter.