Already in this week’s newsletter reference has been made to the slow return of capital inflows to Asia.
Already in this week’s newsletter reference has been made to the slow return of capital inflows to Asia. To gain some perspective on how Hong Kong’s alternative industry has been performing in 2010, Hedgeweek spoke to Christophe Lee (pictured), Chairman of the Hong Kong branch of AIMA. So far this year, according to industry figures, Asia has seen 53 startups, of which 65 per cent chose Hong Kong. Whilst this corresponds to a 3.9 per cent increase in assets, Lee cautions that within these startups there exists a number of “re-launches” e.g. Davide Erro re-entering the arena with his Turiya fund after closing Ghandara Capital. “If you consider the classic definition of startup and take out 5 or 6 of the bigger funds then the actual average asset size is only about USD10-30 million,” says Lee. According to industry figures, assets have doubled year-on-year to USD2.13 billion but the situation is far from rosy. “Startup capital is still proving hard to secure,” says Lee, who admits that today’s challenging environment doesn’t surprise him: “What happens in Hong Kong essentially mirrors what’s happening in the rest of the world.” He points out that coming into 2010, people were hoping that with the wave of redemptions having stabilized, capital inflows would return. “On a global level I anticipate a lot of consolidation happening,” comments Lee. “Certain fund managers are looking at larger platforms to join as the requirement for infrastructure is much higher nowadays – this could be the answer for survival.” Indeed, many of Hong Kong’s hedge funds are much smaller than their US and European peers. And with net outflows from Asia ex-Japan already standing at USD1.2 billion this year, the pressure to stay afloat is high. According to Bloomberg, the USD120 million Hareion fund launched this month by Areion Asset management is Hong Kong’s biggest in 2010; illustrating just how hard capital raising is. “Hong Kong’s industry is certainly healthy,” says Lee, “and we’re seeing more diversified strategies being launched, particularly credit-focused and event driven funds.” New fund managers are the future backbone of Hong Kong’s fund industry according to Lee, and with prop trading desks shutting down, there could well be a wave of talented individuals opening their own hedge funds. “Hong Kong and Singapore are both great places but a lot of people are focusing on China right now, which is good for Hong Kong,” concludes Lee. “Last year the bigger launches were coming from guys that were already located in the city.”
