The Asian hedge fund universe has grown significantly in recent years, with around 1,200 Asia focused hedge funds managing over USD160bn compared to just USD14bn at the end of 2001, acc
The Asian hedge fund universe has grown significantly in recent years, with around 1,200 Asia focused hedge funds managing over USD160bn compared to just USD14bn at the end of 2001, according to John Knox, lead portfolio manager at Castle Asia Alternative.
Knox says diversity has increased and there are now talented, credible managers in most strategies, making it possible to build a truly multi-strategy Asian fund of funds portfolio.
Sentiment in Asia remains positive, underpinned by low interest rates, record loan growth (especially in China) and policy action aimed at maintaining strong liquidity conditions and stimulating domestic demand. Asia has not seen the same level of contraction in consumption as personal and corporate financial leverage was not on a par with Western economies. Asian economies continue to grow, backed by healthy financial systems and efficient internal growth engines in Asia’s largest markets of China and India.
Whilst Japan appears susceptible to a difficult global environment given its lacklustre domestic story, opportunities exist as corporates respond to difficult operating conditions via cost-restructurings and as the market plays catch up to the rest of Asia. Castle Asia decided to increase its allocation to three Japanese long/short managers in May.
‘We remain cognisant of the storm clouds that will continue to cause volatility, and continue to focus on liquid, flexible strategies running variable directional risk,’ says Knox. ‘Emphasis also remains on opportunities in FX and rates strategies given policy action and macro volatility, and on other niche strategies including those focused on on-shore China corporate bonds and closed end funds, and cross border arbitrage.’
Asia Pacific hedge fund balance sheet leverage has been relatively moderate, especially during the recent credit crisis when many managers held net cash. The deleveraging process has not affected Asian managers to the same extent as other regions as they were less leveraged to begin with, Knox adds.
Castle Asia Alternative is the only London-listed Asia fund of hedge funds vehicle. It was launched on 22 November 2005 and has USD94m assets under management. Castle Asia is sub-advised by LGT Capital Partners which currently invests around USD800m with Asia focused managers and has been investing in the region since 1998.
Until 16 June 2009 the company was named KGR Absolute Return. The change of name follows LGT’s acquisition of KGR Capital, a Hong Kong-based manager of Asian funds of hedge funds, in 2008.
