Thu, 05/06/2014 - 15:45
Asia’s large hedge funds are turning to companies outside the region to deliver better returns on the billions of dollars they have raised, reports Bloomberg.
Azentus Capital Management Ltd., with about USD800 million in assets, generated more than a third of its 17 per cent return last year outside Asia, said a person with knowledge of the performance. Tybourne Capital Management (HK) Ltd. reported USD848.8 million worth of US-listed securities at the end of March and Myriad Asset Management Ltd. disclosed USD476.9 million, according to their 13F filings with the US Securities and Exchange Commission.
“Previously, you generally saw Asian funds having only an Asian mandate,” said Matt Pecot, Asia-Pacific head of prime services at Credit Suisse Group AG in Hong Kong. “Nowadays, more funds launched within the region have expanded that to take advantage of the insights that they have gathered in Asia and put a portion of that money to work in the US or Europe.”
Funds that have raised at least USD1 billion after 2009 are turning to global companies that benefit from Asia’s growing consumer and production power, and which are more frequently traded, according Credit Suisse and Bank of America Corp.’s Merrill Lynch unit. They also are stepping outside their home base after the MSCI Asia-Pacific Index generated an annualized return in the three years to April only about a fourth of the MSCI World Index’s.
About 226 stocks listed in Asia have daily turnover of more than USD50 million, the type of companies hedge funds with more than USD1 billion in assets typically target, including those in markets like China, which restrict trading by foreigners. That compares with more than 190 in Europe and almost 850 in the US, according to data compiled by Bloomberg.
Apple Inc’s average daily trading turnover in the 12 months to April was about half of the total for all of the stocks listed in Hong Kong and Australia, according to Bloomberg-compiled data.
“As the largest regional hedge funds continue to raise assets and dominate inflows, they have a requirement to deploy capital without hindering the funds’ liquidity,” said Ben Williams, regional head of financing sales at Bank of America Corp.’s Merrill Lynch unit in Hong Kong. “These US, European companies can often be a more efficient way to play Asian investment themes.”
About 37 per cent of the combined USD81 billion assets of Asia-based managers were in the hands of billion-dollar-plus hedge funds at the end of April, 10 per centage points higher than December 2007, according to Eurekahedge Pte.
The average Asia-based hedge fund oversees USD147 million, the Singapore-based data provider said. About 49 per cent of Asia-based hedge funds lost money in the first four months this year, it said.
Asia-based managers may face investor questions on what their strategy is and how they can claim to know US and European companies better than competitors based in those continents, said Daniel Celeghin, Asia head of Casey Quirk & Associates LLC, a Darien, Connecticut-based adviser to asset managers. Managers in the region can argue that they have deeper insights into how Asia is the key driver of a US or European company, and that could move the stock price, he said.
The expansion to the West by Asia’s bigger hedge funds has coincided with the underperformance of Asian markets as easing by central banks drove recoveries in the US and Europe. The MSCI Asia-Pacific Index returned an annualized 2.6 per cent in the three years to April, trailing the Standard & Poor’s 500 Index’s 14 per cent and the STOXX Europe 600 Index’s 10 per cent gains.
Five out of six of Market Vectors Index Solutions’ (MVIS) investable hedge fund beta indices recorded positive performance in May.
Each index is constructed using transparent, liquid ETFs to produce hedge fund-style returns without hedge fund pricing, opaqueness and redemption restrictions.
MV Asia (Developed) L/S Equity Hedge Fund Beta Index was the top performer with a return of 1.42 per cent. This was followed by the MV Global Event L/S Equity Hedge Fund Beta Index (0.93 per cent), the MV North America L/S Equity Hedge Fund Beta Index (0.89 per cent), the MV Emerging Markets L/S Equity Hedge Fund Beta Index (0.73 per cent) and the MV Global L/S Equity Hedge Fund Beta Index (0.71 per cent).
The MV Western Europe L/S Equity Hedge Fund Beta Index was the only one of the six to finish the month in negative territory with a return of -0.19 per cent.
Hedge funds focused on investing in volatile Russia and Eastern Europe have posted steep losses year-to-date (YTD), with Russian equity, currency, sovereign bond and commodity markets declining sharply as a result of the crisis in Ukraine.
The HFRI EM: Russia/Eastern Europe Index fell -9.7 per cent YTD through April, the worst decline since the Index lost -10.5 per cent in May 2012, according to the latest HFR Emerging Markets Hedge Fund Industry Report, released today by HFR, the established global leader in the indexation, research and analysis of the global hedge fund industry.
Despite the steep performance losses in Russia, total hedge fund capital invested in Emerging Markets rose to USD175.6 Billion (1.01 Trillion RMB, 393 Billion Brazilian Real, 6.037 Trillion Russian Rouble, 658 Billion Riyal, 10.36 Trillion Indian Rupee) a seventh consecutive quarterly record, as inflows into Emerging Asia, Middle East and Multi-EM offsetting performance based asset declines in Russia and Latin America. Investors allocated USD3.4 billion of new capital to hedge funds as EM hedge fund assets increased by nearly USD5 billion during the quarter.
The HFRI Emerging Markets (Total) Index, a broad-based EM composite including EM focused hedge funds across all regions, posting a decline of - 1.0 per cent YTD through April, with Russia-focused funds representing approximately 15 per cent of the index composition.
Hedge funds investing in India and the Middle East have posted the strongest performance YTD, with the HFRI India Index gaining +10.1 per cent through April, while the HFRI MENA Index was up +5.8 per cent over the same period, extending the MENA gain of +21.8 per cent from 2013. Nearly 50 funds focus on investing in the MENA region, collectively managing nearly USD4.0 billion as of the end of Q1.
The HFRI Asia ex-Japan Index also posted a narrow decline of -0.6 per cent YTD through April, topping the decline of the Shanghai Composite with gains in Asian Macro and ED strategies, as well as contributions from funds with exposure to India. Hedge fund capital invested in Emerging Asia as of the end of Q1 increased to nearly USD48 billion across 520 funds.
Total capital invested in Russian hedge funds declined to USD25.1 billion as of the end of Q1, with performance-based losses offsetting an investor inflow of nearly USD300 million, which arrived in spite of the ongoing tumult in Ukraine. As of the end of Q1, approximately 170 funds invest with a dedicated focus on Russia and Eastern Europe, with these funds having posted an average gain of +4.4 and +9.3 per cent in 2012 and 2013, respectively.
KKR, the US private equity group, has shut down its USD510m equities hedge fund just three years after signing up a group of former Goldman Sachs proprietary traders to run it, in the latest venture launched by the investment bank’s alumni to fold.
The Financial Times reports that KKR said it had decided to close the KKR Equity Strategy fund and return capital to investors because of its lack of scale, and a decision to allocate more resources to other hedge fund-focused business within the buyout group.
The hedge fund was run by Bob Howard, a former head of Goldman Sachs’ US equities and credit proprietary trading unit, who was hired in 2010 as part of a drive to expand its business beyond leveraged buyouts into asset management, but it failed to attract enough assets to become a force in the industry.
Mr Howard’s fund generated 5 per cent a year since launch, people briefed by its parent company said, significantly underperforming the US S&P 500 index.
Following US post-crisis legislation that banned large financial services groups such as Goldman Sachs from trading using their own capital, the investment bank closed down its so-called Principal Strategies unit, triggering the departure of many of its staff to hedge funds.
The end of Mr Howard’s venture at KKR is the latest failed hedge fund launch by former Goldman prop traders, whose trading prowess was once revered on Wall Street and in the City of London for generating billions of dollars in revenues.
Pierre Henri-Flamand, who was the head of Goldman’s European prop desk, raised more than USD2bn for the launch of his Edoma Partners hedge fund in one of the most hyped start-ups following the crisis but was forced to close it two years later, citing “unprecedented market conditions” after losing his investors money.
Mr Henri-Flamand was last month signed up by Man Group, the FTSE 250 hedge fund manager, as a senior portfolio manager.
Morgan Sze, who was head of proprietary trading at Goldman Sachs, has fared better, with his Asia-focused Azentus Capital growing to above USD1.5bn in assets.
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