Senrigan attracts USD50million co-investment allocation from BlackStone, Allan Bedwick shuts global macro strategy, whilst KKR receives USD225million pledge for second Asia-focused buyout fund
Asia ex-Japan hedge funds were down an estimated 4.11 per cent in May according to Eurekahedge, amid continued macro headwinds blowing out of Europe. Despite starting the year well, returning 8 per cent through February, Asian funds have now recorded losses for the third consecutive month to leave them +1.63 per cent YTD. Relative value funds shed -6.26 per cent, whilst long/short equity funds – still the most popular hedge fund strategy in the region - ended the month down 4.51 per cent to leave them barely in positive territory (0.95 per cent) for 2012. Early signs are, however, that event-driven strategies fared better in May, gaining 0.08 per cent for a YTD return of +15.94 per cent.
Looking at the event-driven space, one Hong Kong fund to receive a further sign of endorsement this week was Nick Taylor’s Senrigan Capital.
BlackStone Group allocated an additional USD50million to co-invest in the Asia-focused fund reported Reuters, having launched the fund in 2009 with USD100million in seed capital from the US private equity group (total day one AUM was approximately USD150million). The fund grew to an impressive USD1billion in assets last year but has struggled of late with performance, losing 8.6 per cent in 2011 and down a further 7.2 per cent through mid-May 2012 according to sources familiar with Senrigan’s returns. Co-investing is popular in the private equity space where deals are usually priced at 1 per cent management fee and 10 per cent performance fee: half that of most global hedge funds. This benefits hedge fund managers as it gives them access to a larger pool of capital.
Typically, hedge fund seeders take a percentage of the management fee and a hedge fund’s returns in an equity deal by investing in the fund management firm: subsequently, in recent times BlackStone has benefited, not from portfolio gains, but by Senrigan’s impressive AUM growth. Commenting on the co-investment idea as a possible opportunity for other hedge funds in the region running event-driven strategies and trading illiquid assets, James Fallon, a director in the prime brokerage division of Bank of America Corp, said: “It could become more popular with some investors, family offices mainly, that would like to lever off top ideas.”
Back to performance, and MarketWatch this week reported that Och Ziff Capital Management Group LLC’s four main hedge funds posted less dramatic declines than the S&P 500 index’s 6.3 per cent drop last month. Of the four funds, however, the OZ Asia Master fund fell the most, by 2.2 per cent, followed by the OZ Europe Master Fund, which ended the month 1.8 per cent lower. There’s no doubt that the threat of Greece leaving the eurozone was a continued source of angst for investors and with key elections to be held on 17 June, investors will be hoping that a degree of stability is achieved. Despite the tough environment, Och Ziff’s AUM remained unchanged at an estimated USD29.8billion as of 1 June 2012.
One fund that has decided to cut its losses in what remains a challenging capital raising environment is former Lehman Brothers trader Allan Bedwick’s Hong Kong-based global macro strategy fund reported Reuters this week. The reality is that investors are increasingly looking to large established funds as risk remains top of mind, meaning that the region’s smaller sub-USD500million fund managers are finding it nigh-on impossible to compete for parity. One hedge fund consultant, Albourne Partners’ Richard Johnston, said that unless a hedge fund starts with over USD100million and quickly gets to half a billion, it’s a tough task getting to scale. Bedwick made money in the fund, which ran for two and a half years, but wasn’t able to attract enough capital.
Approximately 70 per cent of Asia hedge funds are believed to be below their high-water mark so the chances of more funds shutting over the summer are highly probable as the region goes through a period of consolidation. Already this year Brummer & Partners have pulled their seed capital from Orvent Capital, whilst Hong Kong’s Doric Capital have also shut hedge funds recently. Things are likely to get harder before they get better for the region’s small to mid-size fund manager community.
In people moves, Kevin Meehan, Credit Suisse’s head of prime services for Asia Pacific is to relocate to London as global head of its prime fund services business. Myo Schollum, current head of Asia prime brokerage sales, will replace Meehan.
Finally, AsianInvestor this week reported that two Oregon public funds are allocating USD225million into a Kohlberg Kravis Roberts Asia-focused hedge fund. The two public funds are: Oregon Public Employees Retirement Fund and Oregon Common School Fund. The former is to invest USD200million in the KKR Asian Fund II, and the latter USD25million. The new fund will invest in the region’s developed and emerging markets across a range of market sectors, specifically consumer, infrastructure, manufacturing and healthcare. KKR is looking to raise USD6billion for its second Asian buyout fund.
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