Hans Schlaikier, Hedgeweek

Asia’s Segantii hit by resignations… PCA Investments to shut down …

Reuters reports that Segantii Capital Management, one of Asia's fastest growing hedge funds, has been hit by five recent resignations, people with knowledge of the matter told Reuters, after the firm saw its first annual loss.

Such an exodus is rare in the industry, and it marks a sharp u-turn for a fund that grew to manage about USD750 million from just USD25 million in 2007, making it one of the biggest capital raising successes in the region. The current staff turnover follows at least six departures last year that included its Chief Operating Officer Nigel Hellewell, who left just a year after joining the firm.
 
Key recent departures include Fei Chen, who was responsible for capital markets and event driven investments. He left this month after nearly five years at the firm, sources said. Kirtes Bharti, head of financing, will leave next month, sources said. Derek Tam, who helped manage relative value strategy, has resigned along with Patrick Ko, who runs the firm's middle office operations, according to the sources. Convertible bond and volatility trader, Lewis Fellas, has handed in his resignation and will leave next month, the sources said. Segantii's Chief Executive Kurt Ersoy, speaking to Reuters by telephone, declined to comment on the resignations.
 
Hong Kong's securities regulator has issued 41 staff licences to Segantii since the fund's launch, according to data compiled by webb-site.com, which is run by former independent director of the Hong Kong Exchanges & Clearing, David Webb. The hedge fund had only 18 licence holders as of Jan. 29, the data shows.
 
A hedge fund with financial backing almost entirely from China's giant sovereign-wealth fund closed down last week less than three years after it was launched, according to people familiar with the matter.
 
PCA Investments was formed in 2011 and attracted notice for the involvement of China Investment Corp., the country's USD575 billion sovereign-wealth fund, which is tasked with investing part of China's vast foreign-exchange reserves. PCA had operations in both Hong Kong and Beijing.
 
The involvement of one of the world's largest sovereign-wealth funds with a hedge fund startup with no record of performance was unusual. CIC is better known for investing in established funds.
 
People familiar with the fund said CIC was PCA's only major outside investor, adding even more opaqueness to the privately run firm, which was estimated by these people to be managing more than USD500 million. PCA was founded by Hang Hu and former Merrill Lynch executive Wing Lau, who left the firm last year.
 
The reason for the fund's closure wasn't known. A call to PCA's Hong Kong office wasn't returned and CIC representatives didn't respond to request for comment late Sunday.
The sovereign-wealth fund is going through management changes, with a new chairman, Ding Xuedong, appointed last year amid China's leadership change and its president, Gao Xiqing, set to be succeeded by Executive Vice President Li Keping.
 
A website for PCA describes it as a "multiasset and multistrategy" investment firm running an Asiawide equities strategy, a global fixed-income strategy and a global macro strategy, the latter a catchall phrase for funds that try to predict and profit from global economic trends.

The closure goes against the current interest in Asian hedge funds, many of which are catching the eye of investors with strong performances. Average returns for funds last year investing in Asia excluding Japan beat peers in the U.S. and Europe for the second year running, rising 13 per cent versus an 8 per cent average return for the industry, according to data from industry tracker Eurekahedge.
 
According to Preqin’s Hedge Fund Analyst, hedge funds made gains of 11.08 per cent for the 12-month period ending 31 December 2013, ahead of the 10.13 per cent returned in 2012, and the benchmark loss of -1.93 per cent in 2011. Investors are largely satisfied with the performance in 2013; eighty-four per cent of investors interviewed for the 2014 Preqin Global Hedge Fund Report stated that returns expectations had been met or exceeded in 2013.
 
21 per cent of investors stated returns expectations had been exceeded, the highest level since Preqin started collecting this data in 2008 whilst macro strategies had the worst returns, adding just 2.42 per cent in 2013 and CTA funds made gains of only 0.08 per cent in 2013, taking three-year annualized returns to 0.85 per cent.

Funds of funds posted their highest net returns since 2009, gaining 7.72 per cent in 2013.

January was the best month throughout 2013 for hedge fund performance, with net returns of 2.44 per cent, where hedge fund benchmark was in the red for two months in 2013 – down 1.53 per cent in June and 0.14 per cent in August.

Relative value funds made gains of 7.14 per cent in 2013, and have the lowest three-year volatility of any hedge fund strategy at 1.58 per cent. Top quartile funds accumulated returns of nearly 30 per cent.

Emerging market funds performed poorly compared to counterparts targeting global and developed markets and in contrast to 2012; emerging market funds posted returns of 5.86 per cent in 2013, compared to gains of more than 12 per cent in 2012.

Asia-Pacific-focused funds made gains of 16.73 per cent in 2013, followed by North America funds (16.55 per cent) and Europe funds (13.55 per cent).

Amy Bensted, Head of Hedge Fund Products at Preqin comments: “Much of the recent criticism faced by hedge funds has focused on hedge fund benchmarks being outperformed by leading equity indices, such as the S&P 500. In 2013, the Preqin Hedge Fund Index, a benchmark of average hedge fund returns, again lagged the S&P 500; however, despite this, investors are satisfied with the performance of hedge funds in 2013. Investors are now looking beyond absolute returns; they are also looking for funds to produce strong risk-adjusted returns with low volatility on a consistent basis. The performance of hedge funds over 2012 and 2013 has certainly delivered this.

Event driven and long/short funds led the way in terms of performance, with CTA funds producing disappointing returns for the third year in a row. Emerging market funds were unable to sustain the performance into 2013, posting just 5.86 per cent compared to the 12.62 per cent returned in 2012. However, Asia-Pacific focused funds had another strong year, up 16.73 per cent, making it the top performing region in 2013.”

The Exchange Traded Funds (ETF) industry could surpass the hedge fund industry in Assets Under Management (AUM) in the next 12-18 months according to EY’s Global ETF Survey.

While growth rates will be highest in Asia and lowest in the more mature US market, the growth drivers will be the same across all markets – foreign currency share classes, fund of fund ETFs, new emerging market funds and commodity ETFs.

Achieving scale remains the leading barrier to entry and is a greater challenge in 2014 than it has been in previous years.

In addition, lack of liquidity is the most frequent reason that fund launches fail. More than 90 per cent of those surveyed view USD50 million as the minimum size for an ETF to be viable. More than a third of respondents said USD100 million was the minimum size.

Lisa Kealy, EY’s ETF Leader in Europe, the Middle East, India and Africa, says: “Growth will come from innovation, from more wide-spread users of, and uses for, ETFs as they take market share from active and other passive competitors.

But this year there is a growing awareness amongst promoters that this innovation leaves them open to increased risk – that “someone else’s mistake” could undermine the industry in the eyes of regulators and consumers and damage the whole industry’s growth prospects.”

The EY Global ETF Survey interviewed more than 60 promoters, market makers, investors and service providers over 13 markets, including promoters representing 87 per cent of the industry’s global assets.

The US market is relatively mature, with 70 per cent of the global ETF assets, but it is still set to grow at 15 per cent annually. Growth rates in Europe will average 15-20 per cent while those in Asia Pacific will be amongst the highest in the world at 20-30 per cent per annum.

Lisa says: “The European market is comparatively sophisticated, but geographically fragmented and carries a heavy regulatory burden. The rapid development of Asian ETF markets suggests that they could leapfrog ahead of Europe in the future.”

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