Hans Schlaikier, Hedgeweek

Hedge funds in positive territory mid-month, according to HFRX… City Financial launches Asian macro fund…

Hedge funds posted gains through mid-month with the HFRX Global Hedge Fund Index posting a gain of 0.50 per cent, including a gain of 0.39 per cent on 10 October, the largest one-day gain in almost 2 years, while the HFRX Market Directional Index rose 1.07 per cent.

HFRX Equity Hedge Index posted a gain of 0.97 per cent through mid-October, 2013, with gains across Growth, Value and Market Neutral exposures. HFRX Fundamental Value Index rose 1.01 per cent with gains concentrated in European and US large-cap equity, the Index posted a one day gain of 0.85 per cent on 10 October, the largest one day gain since January 2013. HFRX Fundamental Growth Index gained 0.93 per cent, with contributions from exposure to Emerging Asia and small cap US. HFRX Market Neutral Index gained 0.78 per cent with gains as factor-based & trading oriented model captured powerful mean reverting trends.

HFRX Event Driven Index posted a gain of 0.64 per cent through mid-October, led by gains in Special Situations and Merger Arbitrage strategies. HFRX Special Situations Index gained 0.82 per cent for the month. HFRX Distressed Index gained 0.17 per cent for the period with contributions from various restructurings across Communications, Energy and Financial sectors.

HFRX Macro Index posted gain of 0.39 per cent through mid-October, with contributions of Currency, Emerging Markets and Fixed Income strategies. HFRX Emerging Markets Index posted a gain of +0.93 per cent with positive contributions from Emerging Asian and Currency strategies. The HFRX Macro: Systematic Diversified Index was essentially unchanged through mid-month, with mixed contributions from equities, fixed income and commodity exposures.

HFRX Relative Value Arbitrage Index posted a modest decline of 0.01 per cent through mid-October as yields rose as investors reduced holdings of short dated treasury securities on continued market uncertainty related to the raise of the debt ceiling and the government shutdown. HFRX Convertible Arbitrage Index gained 0.38 per cent on high yield credit tightening, while the HFRX Fixed Income Credit Index gained 0.26 per cent through mid-month.

The hedge fund industry recorded a gain of USD4.4 billion bringing the total assets under management (AUM) to USD1.91 trillion in September as global markets experienced momentum. During the month, hedge fund managers gained USD3 billion, which provided positive impact to the industry’s total AUM.

The MSCI World Index gained climbed by 3.87 per cent while the Eurekahedge Index gained 1.18 per cent in September. The upside was driven by the decision of the Federal Reserve to continue the current level of its bond-buying program, and the prevention of a possible war in the Middle East, particularly the planned US military strike against Syria, according to the latest report from Eurekahedge.

The report indicated that the net asset flows for 2013 reached the highest level in five years, coming in at USD95.3 billion, which was similar to the amount recorded during the period prior to the financial crisis. The strong assets flows showed that investors have positive sentiment towards the hedge fund industry.

According to the report, Asian hedge funds excluding those in Japan outperformed the underlying markets by more than 8 per cent year-to-date in September. Asian hedge funds achieved USD10 billion gain via net positive outflows.

During the month, Japan focused hedge funds started attracting capitals and allocations, and it was the fourth consecutive month of net positive asset outflows. Investors seeking to invest in the country generally allocated capital in traditional investments or in hedge funds that are investing in broad geographic mandates including Japan. Hedge funds that invested in Japan only lost USD4 billion from June 2012 to May 2013 through net negative asset flows. However, Eurekahedge noted that the trends over the past few months seemed to turnaround.

Sun Hung Kai Financial ("SHKF") has announced the addition of Kima Capital Management limited ("Kima Capital") to SHK Fund Management ("SHKFM"), the company’s asset management platform.

SHKFM acquired a 33.01 per cent indirect interest in Kima Capital and was appointed by Kima Capital as the marketing agent and distributor for Kima Capital’s flagship fund in Asia, the Kima Pan Asia Offshore Fund, a Cayman-incorporated hedge fund advised by Kima Capital. The fund implements a Pan-Asia opportunistic hedge fund strategy. Wilfried Gehin, SHKFM s Head of Product Development, was named Chairman of Kima Capital.

Kima Capital was founded by its Managing Director and Chief lnvestment Officer Justin Klintberg in June 2009. Klintberg was previously a portfolio manager at a leading European based manager, Marble Bar Asset Management (MBAM), where he spent seven and a half years overseeing investment in the European and Asian market.

William Leung, Chief Executive Officer of Sun Hung Kai Financial limited said: "We are very excited to partner with Justin and his experienced team of investment professionals. Kima Capital is the latest team to join SHKFM s hedge fund seeding platform. With Justin s experience, unique investment approach and strong track record, we believe Kima Capital is a natural fit to our platform."

Klintberg said: "Partnering with SHKF, one of the most competitive financial services providers and highly regarded institutional investors in the region, will help Kima Capital further strengthen its foundations to achieve our next phase of growth. We look forward to sharing our expertise with SHKF and helping its clients capture investment opportunities with our unique Pan Asian opportunistic hedge fund. l welcome both SHKF and David Nesbitt to the partnership."

Meanwhile, Kima Capital is pleased to announce the appointment of David M Nesbitt as its Chief Executive Officer. Nesbitt is a senior investment management professional, with over 30 years experience in building new businesses and assets under management in the Asia-Pacific region. Nesbitt added: "Working with the founder of Kima Capital, Justin Klintberg, together with the resources of SHKF, provides an opportunity to build an Asian hedge fund significantly different from that of its competitors. Kima Capital’s proprietary investment process means that professional investors should achieve consistent positive returns with low volatility. I very much look forward to growing assets with current and new clients in the region.”

A global survey of hedge fund managers reveals that they are making significant investments in their firms' infrastructure to comply with new regulatory requirements. According to The Cost of Compliance, a new report produced by KPMG International, the Alternative Investment Management Association (AIMA) and the Managed Funds Association (MFA), the average spend on compliance was at least USD700,000 for small fund managers, USD6 million for medium-size fund managers, and USD14 million for large fund managers.

The survey, which is one of the largest global surveys of hedge fund managers, was conducted between May and August of this year and includes the views of 200 hedge fund managers representing more than USD910 billion in assets under management (AUM).  It also included in-depth interviews with managers from North America, Europe and Asia.

The study found that the hedge fund industry has already invested heavily in compliance efforts to meet new global regulations, having spent more than USD3 billion to date on compliance costs.  Hedge fund managers were found to be spending anywhere between 5 per cent and upwards of 10 per cent of their operating costs on compliance technology, headcount and strategy.

The survey found that the cost of compliance is creating a heavier burden on smaller firms and could become a barrier to entering the market.  The smaller firms are spending more – both as a percentage of AUM and relative to operating costs – than their larger counterparts.  In fact, more than a third of hedge fund managers polled with less than USD250 million in assets under management (AUM) said compliance requirements consume more than 10 per cent of their total operating costs.

The survey also found that overwhelmingly, managers are shouldering the majority of the costs associated with compliance, and not passing them on to the funds.

The survey provides an inside look at how the industry is responding to the new regulatory requirements.

North American firms report spending more on compliance measures as a percentage of AUM than those in other regions. In part, this likely reflects the already high compliance requirements in the US, which includes Form PF reporting and SEC registration, versus the expected compliance requirements of the soon-to-be implemented AIFMD.

The addition of new resources and sharpening of focus on regulatory compliance and risk management suggests that hedge fund managers around the world are committed to meeting regulatory requirements as well as the increased demands of institutional investors.

More than half of the respondents believe that recent regulation has improved the strength, transparency and reputation of the market and improved investor protection.

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