Asian hedge funds outperformed their global peers last year and investors took notice, chalking up the highest inflows to the region since 2007, research has shown.
Overall, hedge funds based in Asia (but outside Japan) made 15.85 per cent in 2013, data monitor Eurekahedge said in its end of year report. This outstripped performance by funds based in the larger hubs of North America and Europe.
Investors allocated USD11 billion to these funds, the report showed – the largest amount for six years – while the funds realised performance-based gains of USD8.1 billion, bringing the size of the industry to USD131.1 billion.
Funds allocating to emerging markets in Asia witnessed strong asset flows in 2013 after seeing mostly negative asset flows over the last five years. Between January 2008 and December 2012 Asia ex-Japan funds witnessed USD32 billion in net negative asset flows.
Alongside Asia-based funds, North American funds also found favour with investors, the Eurekahedge report said.
By the end of the year, total assets under management of the North American hedge fund industry stood at USD1.35 trillion, the highest level on record, with net asset flows and performance-based gains for the year standing at USD58.3 billion and USD66.7 billion respectively.
The Eurekahedge North American Hedge Fund Index had an annualised return of 10.60 per cent with a low annualised standard deviation of 5.51 per cent. Additionally, as would befit the largest hedge fund hub, the sector provided the greatest variety of strategies and the largest number of funds for investors to choose from.
European managers also had a good 2013. They witnessed net positive flows throughout the year, raising their assets by nearly USD60.2 billion. Total assets in European hedge funds stood at USD449.9 billion, bringing them closer to their historical high of USD473 billion, reached in December 2007.
Equity long/short strategies were the only ones to see constant inflows throughout the year, with a net USD82.2 billion allocated worldwide. These managers also saw performance-based gains raise their assets under management by USD48.3 billion.
Managers of long-only funds in Singapore that invest mainly in Asian stocks are winning client money, shrugging off difficulties in raising capital faced by smaller hedge funds in the region.
Bloomberg reports that assets under management of such funds in the city-state that manage less then USD500 million surged 410 per cent to about USD990 million from the end of 2010 through November, according to an estimate by research firm GFIA Pte. That compares with a 72 per cent increase for all long-only funds focused on Asia, according to data provider Eurekahedge Pte.
The long-only funds in Singapore, Asia’s second-biggest hedge-fund hub, are becoming more popular against those that also bet on falling prices because of lower costs and lighter regulations. Singapore eclipsed Hong Kong with more assets among its long-only funds in 2012, according to Eurekahedge.
More than half of Asian long-short equity hedge funds that began trading with less than USD50 million still manage less than that amount after an average of 5.3 years in operations, according to a Citigroup Inc. survey released in December, citing data Eurekahedge.
Assets at long-only funds in Singapore have grown 149 per cent to USD10.3 billion last year since 2006, according to Eurekahedge. In Hong Kong, assets among such funds doubled to USD9.6 billion in the same period, the data showed.
The MSCI South East Asia Index has surged 126 per cent in the past five years, outperforming the MSCI Asia Pacific Index’s 69 per cent increase in the same period.
Growth prospects in the region have driven stocks. The economies in Indonesia and Thailand will expand 5.3 per cent and 4.5 per cent respectively this year, outpacing a 3.2 per cent global growth rate, the World Bank said Jan. 15. Vietnam’s economic growth accelerated to 6.04 per cent in the fourth quarter from 5.54 per cent in the previous three months, the government said in December. Singapore’s economic growth will quicken to 4 per cent next year from 3.6 per cent in 2014, according to forecasts compiled by Bloomberg.
Linear Investments, the specialist prime brokerage run by City of London veterans Jerry Lees and Paul Kelly, is looking to launch a Singapore operation.
The company, which incubates small hedge funds and brokers, has benefited over the past two years as the top-tier investment banks have trimmed their smaller, less profitable clients.
Lees, who built the execution business of French brokerage Cheuvreux, said: "We've started talking to a number of people about setting up the same infrastructure in Singapore. The regulators in Singapore are very keen to attract external investors and operators on a more systematic basis than in Hong Kong. Singapore also has a lot of smaller hedge funds and a lot are coming over from Switzerland."
Linear operates as a mini prime broker, offering a range of execution, clearing and settlement services to small hedge funds of up to around USD150 million in assets under management, as well as proprietary trading firms. Many of these small firms have been cut by the larger bulge bracket brokers in recent years because they have been uneconomical to maintain amid low equity-trading volumes and a decline in trading sales coverage.
By aggregating trading activity from these firms and passing it through to large brokers, Linear is able to offer smaller firms wholesale prices. The company launched a Geneva office last year and is now exploring a number of ways of entering the Singapore market with one or more partners, including a US broker, Lees said.
Lees, who grew up in Kuala Lumpur and spent many years working in Asia's key financial centres, including Singapore, Hong Kong and Tokyo, added: "There are structures there we could invest in. It's a question of timing, and making sure we have the funds, capital and the right partners."
In addition to providing execution, post-trade services, stock-lending, and financing, Linear offers a regulatory umbrella, enabling small shops to trade while seeking direct authorisation with the Financial Conduct Authority. It also provides them with compliance arrangements. Linear, which employs around 30 people, has also expanded into capital introduction and capital raising.
Linear Investment Ltd. was authorised by the UK's former watchdog the Financial Services Authority in 2011. Lees originally founded the company in 2009 via a separate entity known as QuantEMS. QuantEMS subsequently acquired Linear last year.
Mutual fund manager Franklin Templeton has hired a former hedge fund manager to expand its Asian line-up of products investing in lucrative alternative assets, joining its peers in tapping a rapidly growing market.
Scott Collison, who in 2011 launched one of the biggest hedge funds in Asia, has joined Franklin Templeton in Singapore as its first head of alternative sales for Asia, home to some of the world's fastest growing economies and large institutional investors.
Franklin Templeton manages some USD880 billion worth of assets globally.
Alternatives include hedge funds, real estate and private equity, and these products earn asset managers far higher fees than the traditional mutual funds and exchange-traded funds. For money managers, alternative assets also diversify income streams.
After a brief slowdown during the 2008 financial crisis, alternative assets have continued to gain popularity with investors, with large asset managers the biggest beneficiary of inflows.
Hedge funds, for example, have seen their assets grow by a trillion dollar to over USD2.5 trillion since 2009, according to data from industry tracker HFR. A survey by Barclays, released on Monday, said the industry could raise a net USD80 billion in 2014, a nearly 25 per cent increase over 2013.
The survey also showed that 66 per cent of the inflows through September in 2013 went to firms managing USD5 billion or more, while 13 per cent went to those with less than USD1 billion.
China's Citic Capital Holdings, known for private-equity investing, is starting its first quantitative hedge fund, as high-tech trading techniques beyond traditional strategies behind stock-picking gain favor in Asia.
The new fund, CCTrack Solutions, will invest in a range of global assets, including forex, commodities, bonds, equities and futures, according to a Citic Capital news release Friday.
The firm will raise money from Chinese and overseas investors, including pension funds and endowments in North America and Europe. Citic Capital will be a "major shareholder," the statement said.
"The new fund will combine short-term trading models with relative-value options strategies," said Robert Savage, CEO of the fund, in the release.
A spokeswoman for Citic Capital declined to comment on the size of the new fund.
The investment-management firm already runs a hedge fund called Citic Capital China Access Fund, which invests in firms in the greater China market. That fund, the size of which is undisclosed, was launched in December 2007.
Citic Capital manages over USD4.3 billion, mostly investing in private equity, venture capital and real estate. Its private-equity arm, Citic Capital Partners, recently closed the buyout of US-listed Chinese company AsiaInfo-Linkage for around USD900 million. The largest private-equity fund Citic runs is a USD925 million offshore fund invested in the domestic market.
Citic Capital's owners include China's sovereign wealth fund, China Investment Corporation, and state-owned conglomerate Citic Group.
Golvis Investment Pte, founded by three former Goldman Sachs Group Inc. managing directors, plans to open its Japan-focused multistrategy hedge fund to investors this quarter, said two people with knowledge of the matter.
Golvis Asia Opportunities Fund returned almost 2 per cent in the first two weeks of January, said the people, who asked not to be identified as the information is private. It started trading early this month with money from the Singapore-based company’s founding partners and employees. Ryan Collins, Golvis’s head of business development, declined to comment on the fund as it is private.
Golvis, led by Chief Investment Officer Koji Gotoda, senior fund manager Takayuki Kasama and Chief Operating Officer Taiichi Hoshino, employs 12 people, said the people. They include a five-member team in Tokyo who report to Gotoda and Kasama and help with company fundamental research, they said.
Gotoda most recently led Asia convertible bond trading at Goldman Sachs before leaving in July. Kasama, a former co-head of Japan credit trading, left the New York-based bank in June, people with knowledge of the matter said in August. Hoshino, the third founding partner, was a Tokyo-based Goldman Sachs managing director focused on fund structuring and marketing, said the people.
All of Golvis’s other employees worked at Goldman Sachs closely with Gotoda and Kasama, they added.
Golvis’s fund invests in all asset classes and is initially focused on Japan, the people said in August. Japan-focused hedge funds have historically traded stocks, making a company staffed by a large team of former Goldman Sachs employees and capable of investing in multiple asset classes a rarity, one of the people said then.