FRM Capital Advisors or “FCA”, the seeding division of FRM (Man Group plc‘s fund of hedge fund division) has entered into a strategic relationship with a Japan focused hedge fund.
FCA will make a significant investment in a fund launched by Arena Capital Management Limited, a Hong Kong based investment advisor Arena, which was established in May 2012 by Toby Bartlett (CIO). The fund manages a Japanese Long-Short Equity strategy focusing on domestic demand sectors.
Patric de Gentile Williams, Head of Seeding at FRM said: “This deal reinforces the global nature of FCA as a seeding business and is the first investment we have made since FRM was acquired by Man last year. Asia, and specifically Japan, is an important focus in our manager research, where we have a local office and a significant investor base”.
Williams continues “Arena’s focus on Japanese domestic demand sector is unique and Toby has extensive experience in researching and investing in this space from his time at Highbridge, Citadel and Fidelity Investments Japan. We see this both as an opportunity to be able to generate alpha in what is traditionally a less researched market by hedge funds where greater inefficiencies will allow managers that do in depth analysis to create an edge, and as an opportunity to attract assets from investors looking to allocate to pure Japanese Long-Short Equity funds. In addition, the recent drop in the Yen and newly elected Prime Minister Abe’s growth-focused economic strategy has caused a substantial rally in the domestic market that may spur meaningful investor interest.”
Toby Bartlett, CIO of Arena, said: “As a new hedge fund, this major investment by FCA allows us to focus all our energies on operational excellence and generating high quality returns for our investors. Our focused approach to fundamental research in Japanese equities, combined with disciplined portfolio construction and risk management, allows us to have low correlation to markets and protect against downside volatility whilst capitalizing on market opportunities for our investors.This strategic relationship with FCA is a major endorsement of the investment process and business principles of Arena.”
Arena is the first seeding deal announced by FCA since FRM was acquired by Man in May 2012 and combined with its multi-manager business to create the largest independent European based fund of hedge funds group.
Despite fears that high yield and emerging market debt may be heading towards a bubble, Hong Kong-based credit specialist hedge fund Double Haven Capital saw its assets jump to USD415m as money continues to flow into credit investments. In a report by a regional fund publication, Double Haven only last month launched a USD200m long only credit strategy for a global reinsurance firm.
The credit specialist is also planning to launch a new illiquid strategy fund that will focus on private lending and distressed position in the next few months.
Darryl Flint, CEO and CIO of Double Haven added that the new managed account platform would invest in Asia dollar-denominated corporate bonds, as well as Australian and Japanese insurers. This will be the first time Double Haven will work for reinsurance clients since acquiring DragonBack Capital.
"While the credit markets in Asia have developed significantly over the last 10 years, we believe there is still much more to be done, resulting in an ever growing opportunity base as Asia shifts from its heavy dependency on the equity markets," said Flint during the acquisition. "In 2012, we are witnessing an unprecedented amount of new issuance which has been easily absorbed by the market, as global bond investors shift from being underweight this asset class and dedicated Asian investors turn their focus to diversify from equities. We think this asset class offers a tremendous opportunity, and are excited to be in a stronger position to deliver a fully institutional offering to investors."
QuantHouse, a trading technology company bought by US media giant McGraw-Hill last year, has opened its first Asian office as some of its biggest clients make forays into the region.
The French company, which specialises in the high-speed delivery of market data for banks, hedge funds and proprietary trading firms, has opened an office in Singapore, it said in a statement today. It also plans to build presences in Hong Kong, Tokyo and Australia later this year.
Pierre Feligioni, S&P Capital IQ ‘s managing director for global real time products, said today: “Given our growing client base in the region and the increasing demand from new and established players, Singapore was the most appropriate starting point for us to provide firms, with local expertise and support.”
The firm has benefited from a rise in electronic trading over the past decade, which has created an associated demand from HFTs for financial data including pricing and voulme figures.
QuantHouse’s move into Asia mirrors that of many of its clients. In June last year, leading electronic trading firmGetco began trading for the first time on Hong Kong Exchanges and Clearing. The move comes 18 months after it joined the Singapore Exchange in its first push into Asia.
Aite analyst, Simmy Grewal, said: "Firms heavily involved in [electronic] trading are looking for alternative markets in which to develop their trade. The Asia-Pacific markets, as they are still evolving, appear to be fulfilling the needs of electronic traders from US and European markets."
Everbright Securities became one of the first companies allowed to conduct over-the-counter (OTC) equity swaps in China this month – a sign of the rising role such firms are playing in the development of the country’s capital markets.
Everbright’s 15-strong global markets division, led by managing director James Yang in Shanghai, is executing OTC derivatives with several Chinese insurers, helping them to hedge their portfolio allocation risk.
It comes after the China Insurance Regulatory Commission announced last October that insurers could trade derivatives, including listed equities futures, for hedging risk or locking in future prices within a month of assets they plan to buy.
“Insurance companies can use equity swaps to hedge market risk related with shares issued by listed companies through private placement,” explains Yang. “As these privately placed shares tend to lock the holders up for over a year, insurance firms would seek to use OTC swaps to lock in a profit from their investments.”
“The new approval to conduct equity-swap business has opened the possibility for many different products, such as delta-one swap and OTC options,” gushes Yang.
He notes that products such as callable bull/bear contracts are also now possible, although he expects them to be limited to the OTC market and sophisticated institutions at first. (In Hong Kong, such products are listed and traded on exchange.)
For now, the scope of equities hedging instruments in China still remains limited. Listed futures are available on the CSI 300 index, but options aren’t, for example.
Approved brokerages can provide margin financing, allowing investors to borrow and short stocks, but industry players note that short-selling is an illiquid business in China.
While Gilbert Tse, executive vice-general manager of Fortune SG Fund Management, welcomes more equities hedging tools being made available OTC, he takes a prudent approach to using such swaps.
“Different from exchange-traded derivatives where there’s more transparency around how risks will be dealt with by the exchange/clearing house, in the OTC space we still need to understand better the pricing dynamics of that OTC instrument, such as how daily NAV is calculated, its liquidity and mechanisms that could mitigate counterparty risk,” he says.
