Credit-based hedge fund strategies could well see increased investor demand as Asia’s credit markets continue to mature. In a recent blog on Preqin, Ivan Jincheng Han wrote that corporate credit and high yield are expected to remain high and are expected to be “the next growth engine of a deepening Asia-Pacific credit market”.
Indeed, Asia’s hedge fund industry has long been dominated by equity-focused strategies. The more it is able to diversify into credit, the better choice and opportunity for investors. Although as Han noted, 89 per cent of investors prefer to have a global outlook when investing in credit strategies; some 48 per cent of investors will look to gain exposure to Asia, according to Han.
Credit hedge funds that are already well established stand a better chance of success. Sixty three per cent of investors will not provide seed capital, said Han. However, they are more open to investing with emerging managers with 57 per cent willing to invest in managers track records of three years or less.
It’s been a good year for Hong Kong-based FoHF firm, SAIL Advisors, with its Asia Equity Alpha Fund in particular benefiting from good stock picking opportunities in the Japan and China markets. Speaking with Hedgeweek, portfolio manager Lanny Lim said: “Having disappointed for a few years, Asian hedge funds are starting to deliver on performance. Japanese hedge funds were up 17 per cent until the end of May, and even China-focused hedge funds are outperforming the MSCI China Index, which is down -4.6 per cent YTD, whereas hedge funds are up 8.7 per cent.
“There are very few asset classes globally right now than can offer the kind of returns being generated by Asian hedge funds when correlations are low and managers are rewarded for good stock picking.”
The fund has a 20 per cent weighting in Japan and making returns on virtually no net exposure. Said Lim: “The majority of our managers are stock picking and trading with minimal net exposure. This has helped our underlying Japan-focused managers return around 22 per cent YTD,” adding that even if the Japan markets were to reverse, “we wouldn’t expect to be unduly hurt”.
Lim believes that while export stocks in Japan have had a great run (because of a weakened yen), the next exciting trade opportunity will be in consumption stocks. “The Japanese government is due to vote on a VAT increase in July, and we expect that to go through. We have therefore increased exposure to one of our Japan managers who is a mostly domestically-focused and a consumption sector specialist.”
As for China, even though its markets have had a difficult run since January (the Shanghai Composite Index is down nearly -4 per cent YTD), Lim says that the fund’s underlying managers are up more than 10 per cent, on average, through May.
“A number of sectors have been strong, which our managers have been able to capture. One is property, which did well in January. Utilities has been a good performer, as has pharmaceuticals. We are overweight those three sectors and underweight industrial stocks.
“A lot of our managers are now starting to look at cyclical stocks, in addition to property. Power stocks are also looking very attractive. If the China markets do well in the second half of the year, I don’t see why we shouldn’t target double-digit returns in the portfolio for 2013.”
Asia ex-Japan hedge funds outperformed underlying markets for three consecutive months reported Singapore Business Review this week, citing the latest Eurekahedge Report June 2013. In May, Asia ex-Japan hedge funds posted the strongest returns, outperforming the market for a third consecutive month and gaining 2.04 per cent. By comparison, the MSCI Asia ex-Japan Index fell -4.35 per cent. Greater China-focused funds delivered the best figures, gaining 4 per cent last month, according to the report. However, the Eurekahedge Japan Hedge Fund Index snapped an 8-month winning streak for Japanese hedge funds, falling -0.15 per cent. Nevertheless, YTD returns still stand at an impressive +17.68 per cent.
Finally, former Soros Fund Management LLC Alumnus, Adam Odorczuk has been hired by SAC Capital Advisors LP to co-head Asia trading, reported Bloomberg News this week. Hong Kong-based Odorczuk has been licensed with Steve Cohen’s Stamford, Connecticut-based hedge fund since 13 June 2013, according to Hong Kong’s financial regulator, the Securities and Exchange Commission. Prior to joining Soros Fund Management, Odorczuk worked for Paul Tudor Jones’ Tudor Investment Corp.