Hong Kong startups have to “deliver performance” to survive says Marshall Wace’s Anderson
Whilst startup numbers are undoubtedly healthy for Hong Kong this year, with 65 per cent of hedge fund managers choosing to domicile there, the issue of capital raising remains prominent. On average, startup AUM is just USD10–13 million. Expansion, whilst vital to Hong Kong’s alternatives industry, is being superseded by fund evolution. Speaking to Hedgeweek, Des Anderson, a managing partner at Marshall Wace in Hong Kong, said there were no clear signs of consolidation at the moment, but it is likely the numbers would fall. “It will happen because there are too many,” said Anderson. “It will basically be survival of the fittest. The global funds moving into Asia might hire smaller startup teams to complement a bigger platform.” Anderson went on to stress that it’s not as if the smaller hedge funds with less than USD50 million are without hope, “they just have to stand out” and "there are many smaller fund of funds and high net worth individuals that will allocate to the start ups in search of outsized returns". He admits being unsurprised by the startup numbers because growth profiles in Asia are more superior to elsewhere in the world.
With institutional investors being far more rigorous before committing capital the barriers to entry are higher. “Today, investors want to see a much greater infrastructure in place (risk management, compliance etc) so the onus is on start-ups to have this,” explained Anderson. In his opinion, the industry is already bifurcated with the larger allocators, pension and mutual funds, tending towards heavyweight hedge funds that can accept larger allocations. Small, nimble funds have a chance to break through the USD100 million barrier, if they can deliver performance and conquer the tough environmental conditions. One recent success, Hong Kong-based Senrigan Capital, has certainly done this; launched last November, the fund has already exceeded USD600 million. It operates within the M&A space, where activity has picked up dramatically: “I think the event-driven and special situation strategies are receiving inflows,” said Anderson. As for Marshall Wace themselves, who established a Hong Kong office in 2006, Anderson admitted that their performance has been satisfactory across products this year. “We are well known for our TOPS strategies but we have added some exceptional fund managers in the last two years so we have a better balance to our business today than when we arrived in the region.”
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