Quant Hedge Funds Boom in AsiaBy and
New computer-driven funds set to open in Singapore, Hong Kong
Quants have outperformed China equity hedge funds this year
More Asian hedge funds are starting computer-driven strategies, as investors disappointed by the poor performance of some traditional funds search for better returns.
In Singapore, $2 billion multi-family office Thirdrock Group has launched a quant fund, and Lucerne Investment Partners is considering starting one next year. Charles Wang, a former portfolio manager at Bosera Asset Management, is about to launch a vehicle on OP Investment Management’s platform in Hong Kong, where Hantak Investment Advisors plans to next year open a version of the quantitative fund it runs out of Beijing.
“Asia has long been dominated by equity strategies,” said Will Tan, a managing director at Principle Partners Pte in Singapore, which specializes in recruiting for hedge funds. “However, they have disappointed recently. So investors are seeking to diversify and turn to systematic trading in particular, as those investment styles have less correlation with other markets.”
The growing Asian interest in computer-driven funds is part of a global shift, as investors bet machines, devoid of emotion, are better placed to make money or protect their capital in volatile markets. While China equity hedge funds have outperformed quants by a wide margin in three of the past four years, they’ve lost 1.2 percent this year through the end of September, underperforming algorithmic strategies investing in Asia by 4.6 percentage points, according to data provider Eurekahedge Pte.
Junson Capital, a Hong Kong-based family office, is meeting with quantitative hedge funds in the U.S. and Asia and may make its first investment within a couple of years, said Maggie Chen, head of portfolio management.
"We’re seeing how much the investment industry is changing" with the search for yield, she said. "That’s one reason we have to keep an eye on quant funds."
The new funds add to a group of Chinese quant shops branching out across Asia as some of the country’s wealth heads offshore, and to other recent startups. Samsung Asset Management earlier this year started a fund headed by former BlackRock Inc. director Chang Hwan Sung. Former Balyasny Asset Management analyst Avirath Kakkar later launched a hedge fund using about 10 so-called systematic macro-trading strategies in 150 markets.
Asia-focused quant funds have beaten global peers in all but one year since 2005, according to Eurekahedge. In the first nine months of this year, the 3.4 percent gain in Asia beat the 1.8 percent global return for quant funds, according to the Singapore-based data provider.
So far, allocations to Asia-based quant funds have been in line with global trends, rising about 30 percent the past two years.
Still, there’s plenty of room to catch up in the region. Asian CTA/managed-futures funds had $4.2 billion of assets at the end of the second quarter, just 2 percent of the $256 billion invested globally, the Eurekahedge data show.
Room to Grow
Similarly, Asia is home to 88 quantitative funds, just 6 percent of the global total of 1,387. And while the number of funds in Asia has risen by 10 percent since 2011, the global number is up 70 percent.
Jivan Sidhu, an associate consultant at research firm Greenwich Associates, says institutional investors in Asia are showing more interest in algorithmic funds.
Of the 200 Asian institutions tracked by Greenwich, about 25 percent are either investing in computer-driven or related strategies or considering doing so, up from between 10 and 15 percent 5 years ago when yields on core asset classes were higher, he said.
Institutional investors in the region “would be interested in quant funds setting up here,” Sidhu said. “For a more sophisticated strategy like this, as a client, I want more face-to-face interactions, more face time with my manager.”
The allocation to quant strategies by Asian institutional investors is as much as 5 percent of their total investments on average -- about half of the allocation by institutional investors in the U.S., he estimates.
Globally, hedge funds that use mathematical models have raised $21 billion this year, according to data provider eVestment, while the rest of the industry suffered $60 billion of withdrawals.
While big Asian quant funds like Singapore’s Quantedge have made sizeable returns, some in other parts of the world have disappointed. London-based $7.4 billion BlueTrend Programme, managed by Leda Braga, lost 7.1 percent in the first nine months of the year. Winton Capital Management, one of the world’s largest quant fund firms with $34.4 billion under management, posted a 1 percent loss in its main Futures Fund during the period, while the Winton Evolution Fund declined 3 percent.
Wang, the former Bosera Asset portfolio manager, will open his computer-driven hedge fund strategy at the end of this month with between $100 million and $200 million.
Hantak Investment, a $192 million quant firm started by two former Millennium Management executives, will open an office in Hong Kong next year and start an offshore version of its futures strategy, according to Chief Executive Officer Zhiyu Qin. Hantak Investment Advisors has gained 26 percent annualized since it began trading in February 2012.
The long-only Firth Asian Systematic Equities Fund, another newcomer to Asia, has returned about 20 percent since inception in February, according to Singapore-based portfolio manager Hamish Macalister.