Hans Schlaikier, Hedgeweek

Hong Kong hedge assets on the rise… Investors seek protection in the wake of N Korean threats…

Thu, 04/04/2013 - 16:13

Hedge fund assets under management in Hong Kong have increased by more than a third over the past two years, according to a survey released by the HK Securities and Futures Commission.

The SFC said its survey of 348 licensed hedge funds found that AUM had increased by 38 per cent from the time of the last survey in September 2010 to USD87.1bn as of 30 September 2012 (the date at which the SFC requested data for).

In addition to a rising AUM, the SFC said the two-year period saw a 25 per cent surge in the number of hedge funds based in Hong Kong, increasing from 538 to 676

Furthermore, the “Report of the Survey on Hedge Fund Activities of SFC-licensed Managers/Advisers” revealed that the majority of fund managers invested mainly in the Asia Pacific region using equity long/short strategies and multi-strategies.  As of 30 September 2012, 65.4 per cent of the total AUM was invested in the Asia Pacific markets. Hong Kong and Mainland China accounted for 27.5 per cent.

Interestingly, 94 per cent of the investors in the funds were from outside of Hong Kong, with most either funds of hedge funds, insurance companies or other institutional investors.

Unable to decide if Pyongyang's military threats are real or mere rhetoric, some fund managers and other investors exposed to South Korean stocks and bonds are buying financial protection in the form of cheap options and credit insurance.

Nearly two months since Pyongyang's nuclear test on February 12, some investors have begun to show signs of nervousness in reaction to a series of North Korean threats that have included waging war on the neighbouring South and putting nuclear missiles on standby.

South Korean sovereign credit default swaps - the cost of insuring five-year sovereign debt - have widened to 83 basis points, their highest in six months. The won has fallen nearly 5 per cent against the dollar this year, half of the losses coming after the North's February 12 nuclear test.

In contrast many domestic investors remain convinced that North Korea's threats to attack the South or even more distant U.S. military bases are merely bluster, despite the fact that Pyongyang has surprised in the past with nuclear tests in 2006 and 2009, and a deadly attack on a South Korean island in 2010.

In the CDS markets, it wasn't merely fund managers with holdings in South Korea that were seen buying protection. Many bids were also from banks and institutions that had exposure to the won and government bonds, owing to the large volumes of credit linked notes (CLN) they had sold, traders said.

Five out of six of Market Vectors investable hedge fund beta indices recorded positive returns in March, according to figures released by Market Vectors Index Solutions (MVIS).

The MV Emerging Markets L/S Equity Hedge Fund Beta Index (0.07 per cent) was the only index to finish the month in negative territory.

MV North America L/S Equity Hedge Fund Beta Index (2.08 per cent) was the best performer, while MV Asia (Developed) L/S Equity Hedge Fund Beta Index (1.48 per cent), MV Global L/S Equity Hedge Fund Beta Index (1.32 per cent), MV Global Event L/S Equity Hedge Fund Beta Index (0.64 per cent) and MV Western Europe L/S Equity Hedge Fund Beta Index (0.18 per cent) were all positive too.
 
With a history stretching back to 2003, the Market Vectors Hedge Fund Beta Indices use a patented methodology in seeking to capture the beta returns of universes of statistically similar hedge funds that exhibit in aggregate consistently high concentrations of beta. MVIS currently offers four regional and two global long/short hedge fund strategies.

UCITS hedge funds underperform their non-UCITS rivals, shows new study. This new research is drawn from the Newedge research chair on “Advanced Modelling for Alternative Investments” at EDHEC-Risk Institute.

UCITS hedge funds are typically more volatile and underperform their non-UCITS hedge fund rivals, a new comprehensive comparative study by the EDHEC-Risk Institute has found.

The finding, also show that the domicile of a fund is an important indicator of a fund’s likely performance with European domiciled funds delivering lower risk-adjusted returns compared to funds domiciled in other regions.

The EDHEC-Risk Institute study, which examined an aggregate hedge fund dataset that consisted of more than 24,000 unique hedge funds, is one of the most comprehensive analyses of the performance and risks of UCITS hedge funds and non-UCITS hedge funds undertaken in recent times.

Commenting on the results of the survey, Noël Amenc, Director of EDHEC-Risk Institute, said: “Investors are increasingly considering hedge funds as part of their investment universe, but are also searching for access to sophisticated risk management techniques within the regulated and transparent world of mutual fund products. We are delighted that this study supported by Newedge has been able to shed light on the way in which techniques are converging in the mutual fund and hedge fund universes and we think that the research will be of particular interest to institutional investors”.


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