Hans Schlaikier, Hedgeweek

Hedge fund interest in Europe on the rise despite global outflows… Gold funds continue to attract Asian investors…

Despite sharp losses in June, hedge fund managers are seeing more opportunities in Europe. Following a slow start to 2013, Europe-focused hedge funds represented 16 per cent of funds launched in Q2, compared to 2 per cent in Q1. Overall, 300 hedge funds have launched this year, according to data from Preqin.

Hedge funds across the world posted their largest loss for 12 months in June, as continued fears of slow growth in China and the tapering of the Federal Reserve’s bond buying program hit performance.

Total assets under management declined by USD21 billion over the month to USD1.89 trillion, according to hedge fund database Eurekahedge. Before the sell-off hedge funds had a seven-month streak of inflows from November 2012.

North American (+1.48 per cent) and European hedge funds (+1.37 per cent) both outperformed Asia-Pacific hedge funds in Q2 2013 (+1.01 per cent), although strong Q1 performance of Asia-Pacific funds means it is still the top performing region in 2013 YTD, while emerging markets-focused funds faired worst, with a decline of 1.58 per cent. Japan-focused hedge funds saw positive asset flows in June after a 12-month run of outflows, which saw funds investing in Japan losing USD4 billion between June 2012 and May this year.

Global equity markets recovered much of their June declines through mid-July as investor concerns over near term extraction of stimulus measures by US Federal Reserve subsided; equities posted gains across most regions, balanced across the US, European, Asian and Emerging Markets. European equities also gained across most regions, led by strength in the Netherlands, Russia, Sweden and the UK; Asian equities also posted gains led by Japan, China & Australia. There has been a clear knock on effect as indicated by HFRU hedge fund indices:

  • UCITS compliant Hedge funds posted gains, with the HFRU Hedge Fund Composite Index gaining +1.18 per cent through mid-July.
  • HFRU Equity Hedge Index posted a gain of +1.88 per cent through mid-July, 2013, with contributions from Healthcare, Emerging Europe and Technology sectors, partially offset by positioning in Brazil and India.
  • HFRU Event Driven Index posted a gain of +1.11 per cent through mid-July, with contributions from European and Asian Equity Special Situations and Global Merger Arbitrage strategies.
  • HFRU Macro Index posted a gain of +0.91 per cent through mid-July, with contributions from Systematic strategies concentrated in Currencies and Commodities, which were partially offset by Active Trading and Volatility strategies.
  • HFRU Relative Value Arbitrage Index gained +0.39 per cent through mid-July, with gains in Real Estate, Global Convertible and Fixed Income strategies, only partially offset by Volatility and Fixed Income: Asset-Backed strategies.

 
In sharp contrast to Western markets, where investors have been eagerly exiting gold fund investments, a net USD33.5 million was pumped into Asian gold and precious metals miners' funds in the three months to June, according to data from fund tracker Lipper and Reuters.

Similar funds in the West saw net outflows of about USD18 billion, or about 11 per cent of their end-March assets under management, in the same period, according to the Lipper data.

The conflicting responses to the 20 per cent fall in gold prices this year show a growing appetite for gold funds in Asia and provide hope for a fledgling funds industry that has struggled to attract investors.

Gold - coming off 12 years of gains - is headed for its worst annual performance since 1997 on worries global central banks will withdraw their easy-money policies of the past few years, making the metal less compelling for investors.

The precious metal fell sharply in April, down over USD200 an ounce in two days, and then again in June when it fell 15 per cent over nine sessions.

Despite the inflows, Asia remains a far smaller market for gold funds compared to the United States, where top hedge fund managers such as John Paulson of Paulson & Co. Inc, David Einhorn of Greenlight Capital Management and Dan Loeb of Third Point LLC have significant exposure to the metal.

Singapore’s rise as a global centre for managing money has taken a big step with assets under management in the city state rising by nearly a quarter last year, as reported by Financial Times.

Funds managed in the city state rose 22 per cent to SUSD1.63tn (USD1.29tn), from SUSD1.34tn a year previously, the Monetary Authority of Singapore (MAS), the central bank, revealed earlier this week.

Hong Kong and Singapore are closing the gap with Switzerland and London as they benefit from the growing wealth of a new generation of Asian businesspeople. Switzerland’s private banking industry is suffering from a damaging row with the US over some Swiss banks’ alleged complicity in tax evasion by US citizens.

Gottex Fund Management’s flagship fund of hedge funds products continue to perform well and have posted positive returns 2013 year to date.

Asian strategies have seen exceptional performance, up 7.9 per cent, with alternative credit strategies up 4.2 per cent and portable alpha US equity strategies up 16.2 per cent year to date. After the more challenging global performance environment towards the end of Q2, Gottex’s second market neutral product is now expected to regain its high water mark in Q3 2013 and will then start accruing performance fees.

Gottex has completed the acquisition of a majority holding in UK-based Frontier Investment Management, allowing the group to offer liquid onshore multi-asset products. The company has also completed a joint venture with partners of Australian based consulting firm Zenith offering hedge fund advisory services to local institutional investors. Gottex expects the 2013 interim results to show a small cash operating loss (subject to audit and final review).

Edex, Gottex’s hedge fund workout service, which manages over USD600m, has won a major third party mandate to take over a hedge fund portfolio of USD140m.

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