2014 has been good for long/short equity funds, asset-wise – investors poured USD51.6 billion (net) into them in H1 2014, the strongest inflows since H1 2006.
According to the latest data from Eurekahedge, global hedge funds saw net inflows of USD65.3 billion in H1 2014 (similar to the numbers a year earlier). That plus performance-based gains pushed industry assets under management up USD105.6 billion in the monitored period, to a record high USD2.12 trillion.
European hedge funds attracted USD31.3 billion in net asset flows in the first half of 2014, up from USD15.9 billion over the same period last year.
North American managers recorded net asset flows of USD 31.4 billion as of end-June, and added to that performance-based gains of USD29.6 billion.
Other first half highlights included a year-on-year drop in new Asian fund launches (from 70 to 40); strong performance by North American multi-strategy and fixed-income managers (up 8.33 per cent and 6.35 per cent, respectively, without a single down month); and another strong month for India long/short equity funds, which returned 5.69 per cent in June, putting their first half gains at 32.81 per cent.
The news wasn't so good for CTA/managed futures hedge funds, which saw outflows of USD9.1 billion in H1 and have seen only one month of positive flows in the past 12.
All hedge fund regional mandates ended June in positive territory. Japanese managers were the best performers during the month, returning 2.31 per cent supported by encouraging earnings reports and improvement in China’s manufacturing activity. Furthermore, the Japanese GPIF has signalled a planned increased in its allocations to domestic equities, a move which is likely to see investors buy back into their bullish bets on the Nikkei.
Asia ex-Japan funds sit squarely in third place with returns of 1.56 per cent as the aforementioned higher Chinese PMI figures did much to allay investor concerns while Indian equity markets continued to rally with the post election market euphoria still continuing unabated.
On a year-to-date basis, North American and Asia ex-Japan hedge funds lead the table with returns of 4.52 per cent and 3.57 per cent while funds investing in Japan delivered the smallest return, up 0.42 per cent after suffering four consecutive months of losses earlier this year. Japanese equities retreated in the first few months of 2014 after their spectacular performance in 2013, triggered by doubts over the longevity of Abenomics in reviving the economy and the implementation of a sales tax hike in April.
Gerald Kok, a former fund manager at Macquarie Group Ltd. (MQG), plans to start a hedge fund that invests in Asian and US companies going through corporate events such as mergers and divestments.
GSK Global Fund will focus on companies that have share prices at a significant discount to their fair value, said Kok, who runs the Singapore-based fund-management company G&S Asset Management Pte with business partner Susan Xiao. Xiao also plans to start a different fund later in the year, Kok said. Both funds will have a combined USD10 million of assets under management, he said, declining to elaborate.
Kok plans to start the new fund as low interest rates globally help bolster stock markets. The MSCI World Index has gained 42 per cent over the past two years, outperforming the 15 per cent gain by the MSCI Emerging Markets Index. Asian hedge-fund startups have raised an average USD20 million each in the first half of 2014, more than the average USD15 million raised in 2013, according to Singapore-based data provider Eurekahedge Pte.
GSK Global Fund will also invest in stock-related securities such as convertibles and options, he said. A large part of the portfolio will probably be in developed Asia-Pacific countries such as Singapore, Hong Kong, Taiwan and Australia, and the U.S., with mostly long positions, he said.
The initial capital of USD10 million will be provided by the Kok and Xiao families, other high-net-worth individuals and industry contacts, Kok said, adding that they will eventually expand to include institutional investors.
Special-situations investment opportunities can be found more in the U.S., compared with Asia, because many Asian companies are either controlled by the state or by founding families, making them less open to shareholder activism, Kok said. Asian companies also rely on mergers to create value less than their U.S. counterparts as the growth rates in Asia are higher, he said.
Kok was previously a vice president at Macquarie in Singapore, where he focused on special-situation strategies in Asia, he said. He also worked at Credit Suisse Group AG’s investment-banking division as well as hedge-fund firm Gruss Capital Management Ltd. in Hong Kong, he said.
A pair of Elliott Management veterans will seek USD100 million for a new Asia-focused special-situations hedge fund.
Ark Pacific Capital Management will invest in private convertible bond issues and pre-initial public offering companies, as well as make direct loans, Bloomberg News reports.
Firm founders Kenneth Ng and Arthur Lau plan to tap opportunities too small for Elliott and to offer their clients co-investment opportunities.
The Hong Kong-based firm will focus on Greater China initially, although it will also look at South Korea and Southeast Asia.
Ark hopes to raise USD50 million by the fourth quarter, drawing down commitments as necessary, like a private-equity fund. It will also impose a three-year lockup to facilitate its p.e.-style investments.
Ng and Lau will serve as co-chief investment officers, with the former running the firm and managing partner and the latter focusing on fundraising and deal-sourcing. The two worked together for six years at Elliott—both covering Greater China—until their departures in January and October, respectively.
The Hedge Fund Standards Board (HFSB) has been granted affiliate membership of the International Organisation of Securities Commissions (IOSCO).
More than 120 securities regulators are full members of IOSCO and the HFSB will join 62 other affiliate members involved in the markets, including the London Stock Exchange, Deutsche Börse and the International Capital Market Association.
David Wright, secretary general of IOSCO, says: "We are pleased to welcome the Hedge Fund Standards Board as an affiliate member of IOSCO. There is an important role for industry standards to play alongside statutory regulation in promoting transparency and good governance in the financial markets. The HFSB can play a valuable role working with regulators and supervisors."
Dame Amelia Fawcett (pictured), chairman of the HFSB, says: "Membership of IOSCO will provide a significant boost to our efforts to engage with the leading investors and hedge fund managers around the world. Like IOSCO, our raison d'être is to promote high standards and enhance investor confidence in the capital markets. We look forward to working with regulators and market participants to improve transparency, market integrity and risk management."
The HFSB was set up in Europe in 2008 as the standard setting body for the hedge fund industry and now has a growing membership internationally in both Asia and North America. Hedge fund managers in the US and Canada now account for 40 per cent of the HFSB's 121 signatories. Assets under management of all HFSB signatories total more than USD600 billion.
IOSCO's members regulate more than 95 per cent of the world's securities markets and it is the only international financial regulatory body that includes all the main emerging markets.
