The hedge fund industry in Asia today resembles that in Europe a couple of years ago.
The hedge fund industry in Asia today resembles that in Europe a couple of years ago. For example, the average size of a new hedge fund launch is still relatively small at less than USD100m, although this represents an increase over the past couple of years. However, the region is starting to see one or two very large fund launches each year, and their number is certain to grow as the industry continues to develop. Funds starting up with a relatively small level of assets under management have less available to spend on getting their operations up and running and are likely to have a smaller in-house technical infrastructure. However, Asian managers remain conscious of the importance of having proper portfolio management systems – especially as to a large extent their investor base may be not necessarily Asian but Western.
With the benefit of several more years of experience and industry development, Western investors have a good idea of what they need to see in hedge fund managers to ensure their peace of mind, and a sound technology base is one of those things. Because of their more limited resources, the Asian hedge fund managers who are clients of Beauchamp Hedge Fund Solutions tend to be interested in our ASP product, because they don’t want to have to manage any hardware infrastructure in-house, and because it’s an economical choice for a start-up business.
One of the unique characteristics of the Asian hedge fund industry is that for many managers trading takes place in a different location to the generation of investment ideas. A substantial number of Japanese funds carry out trading through offices in Singapore, because in order to carry out trading onshore in apan funds have to be registered with the financial authorities in Japan, which is prohibitively expensive for most hedge fund start-ups. With interest in Japanese hedge funds growing among US and European investors, this is helping to boost significantly the number of fund startups in Singapore.
The number of Japanese funds using Singapore for trading is also encouraging another trend characteristic of the Asian hedge fund industry, the use of so-called hedge fund hotels or incubators. Many funds will seek to avoid the extra expense of setting up their own office in Singapore by doing all their trading through a hedge fund hotel that manages all the technology and infrastructure.
Some will not only host the fund and provide an execution platform but will help raise capital and even give the fund money to run, perhaps in exchange for a stake in the fund manager when it grows larger and moves out to set up its own operational infrastructure.
Whereas in the past most Japanese hedge funds were set up by Western managers, the past year has seen the emergence of local managers from large institutions to set up on their own. Even though this runs against the grain of Japanese culture, the economics are compelling for talented managers whose compensation within institutions is largely determined by seniority.
Alongside the emerging Asian hedge fund talent are large hedge fund managers from the US and Europe and global financial institutions that are opening offices in the region. These firms have different infrastructure needs from start-ups because they need to be able to run a centralised system that facilitates real-time communication and exchange of data with their headquarters in New York or London and any offices around the world.
