Asian stock rally boosts hedge fund performance… Hedge funds rebound with August gains…
Hedge fund and absolute return managers have generally caught the upside stemming from a rally in Asian stock markets in July, while Chinese managers have finally seen some fruits from the country’s economic reforms, according to GFIA.
The fund consultancy said in a report that the MSCI AC Asia Pacific ex Japan index finished up 3.5 per cent in July, with the majority of Asian country indices positive. The hedge fund benchmark AsiaHedge Asia ex Japan – USD was also up 2.3 per cent during the period.
“Good two-way contributions in India coupled with positive long performance in China/Hong Kong were the primary positive contributors to Flowering Tree’s Ashoka Fund (2.9 per cent). Dalton Asia Fund (1 per cent) underperformed the benchmark as their short positions in Japan did not play out well in the upward-driven market. Nezu Asia registered a 2.5 per cent return in July with positive contribution from its Japan and China books,” GFIA said.
In July, the Japanese stock market rallied as foreign investors continued to be net buyers, with an improved view on Japanese stocks; TOPIX and the Nikkei were up 2.1 per cent and 3 per cent, respectively, for the month. Japanese managers generally tracked the indices; UMJ Kotoshiro was up 2.1 per cent with contributions coming from single stock selection. The portfolio manager has reduced its net exposure to 25 per cent as the long and short portfolios are starting to indicate similar beta figures.
As for Greater China, the report indicated that the Chinese onshore and offshore markets had a strong rally on the back of easing by the People’s Bank of China and the removal of home purchase restrictions in various cities. The onshore market was also boosted by foreign buying ahead of the expected launch of Shanghai-Hong Kong Stock Connect in October.
Against this backdrop, Orchid China (1.7 per cent) continues to harvest profits from its internet names as investors bought into these in anticipation of good earnings releases in July and August. Zeal China Fund (2.5 per cent) had a good month as the portfolio manager has been building up its gross long exposure for the past several months.
Hedge funds were up 1.36 per cent in August with performance-based gains of approximately USD5.5 billion, data provider Eurekahedge reported.
However, the Eurekahedge Hedge Fund Index continued to trail equities overall as the MSCI World Index gained 2.48 per cent during the month.
Hedge fund performance rebounded after investors redeemed USD4.72 billion in July, resulting in the largest net asset outflows this year.
Modest GDP figures from the United States and supportive interest rate policies from central banks, such as quantitative easing by the European Central Bank, resulted in more positive investor attitudes which pushed equity markets higher and drove volatility down during the month, Eurekahedge said.
Macro-economic statistics indicating an economic slowdown in China led to mixed results in the Asian markets with more economic stimulus measures expected from the Chinese government.
On a year-to-date basis the MSCI World Index returned 5.96 per cent, outperforming hedge funds with 4.22 per cent. Managers investing in emerging markets and North America delivered the best returns of 5.61 per cent and 5.44 per cent, respectively, for the year so far.
Managers investing with an emerging market and Asia, excluding Japan, also saw strong gains of 1.50 per cent and 1.46 per cent, respectively, with Asian funds attributing much of their gains to their exposure to Thai and Indian equities which underwent strong rallies due to an improving outlook for the regional economies.
India focused hedge funds posted their seventh consecutive month of gains, up 1.92 per cent in August and 28.17 per cent year-to-date.
Japanese hedge funds posted gains in each month and were up 1.35 per cent in August, outperforming Japanese stocks, with the Nikkei 225 dropping 1.26 per cent. For the year, hedge funds have outperformed Japanese equity markets by 7 per cent. In August stock markets reacted to sharp contraction of the Japanese economy in the second quarter following a sales tax hike in April.
Asian hedge funds specialist GFIA, said in its latest market Insight that emerging markets hedge funds outperformed in July with the exception of Russia developed markets in both equities and credit.
The MSCI AC Asia Pacific ex Japan finished up 3.5 per cent, with the majority of Asian country indices positive. In many markets, notably China/Hong Kong, Korea and Taiwan, out-of-favor stocks led returns, causing losses on shorts and underperformance on longs.
The four emerging ASEAN markets of Indonesia (Indonesia JKSE: 4.3 per cent), Philippines (Philippines PSEi: 0.3 per cent), Thailand (Thailand SET: 1.0 per cent) and Vietnam (Vietnam VN Index: 3.1 per cent) all ended positive this month.
"MPA Asia Fund’s (-1.1 per cent) portfolio was hurt by shorts, predominantly from a reversal in cyclicals caused by a near-term change in macro sentiment in China and a rotation away from Technology names in Taiwan. Good two way contributions in India coupled with positive long performance in China/Hong Kong were the primary positive contributors to Flowering Tree’s Ashoka Fund (2.9 per cent)," GFIA said in its latest report.
It added that the Dalton Asia Fund (1.0 per cent) underperformed the benchmark as their short positions in Japan did not play out well in the upward-driven market. Nezu Asia registered 2.5 per cent return in July with positive contributions from its Japan and China books. The Japan book was the most active amidst the earnings reporting season and contributed 5.1 per cent and -1.2 per cent on the long and short side respectively. With improving market sentiments in ASEAN, Binjai Hill Asia Acorns Fund (2.3 per cent) has increased its long gross exposure from 66 per cent to 83 per cent, raising the number of positions by 17.
Multi-strategy funds mostly traded sideways during the month. Octis Asia Pacific (0.9 per cent) and Omnix Asia Fund (0.6 per cent) both remained on the sidelines in deploying risk amidst the mild Asian equity rally in July. Phalanx Japan AustralAsia Multi-Strategy Fund returned 1.1 per cent, contributed mainly by its volatility arbitrage strategies in Japan and China/Hong Kong. Maso Capital is the obvious outperformer among its peers as all its sub-strategies ended the month positive. The fund manager has been increasing their net equity event exposure given their view on a range of potential catalysts in China, Korea and Japan.
Nine out of 10 hedge-fund managers are overpaid as management fees don’t reflect declining interest rates and fund returns, according to Unigestion Holding SA, which invests USD2 billion in hedge funds, reports Bloomberg.
The fees, which still make up as much as 2 per cent of a fund’s assets, represent a disproportionately high share of the total remuneration unrelated to performance, said Nicolas Rousselet, head of hedge funds at Unigestion. To align managers’ pay more with performance, the fund industry should either abandon the management fee or combine it with a hurdle rate that one must achieve before collecting incentive fees, he said.
Fees are coming down amid efforts to win mandates in an industry that traditionally charges about 20 per cent on performance and 2 per cent on the total assets. Investors paid an average 1.69 per cent last year, with the share of those who paid 1.5 per cent or more at 79 per cent, almost unchanged from 2012, according to a Deutsche Bank AG survey published in February.
Global hedge funds returned 8.6 per cent in 2013 and 6.9 per cent in 2012, compared with 10 per cent to 21 per cent in nine of the 11 years through 2010, according to Singapore-based data provider Eurekahedge.
Unigestion, based in Geneva, manages USD16 billion, of which USD2 billion is invested in about 60 hedge funds through its funds of hedge funds, said Rousselet.
Among hedge funds that have taken steps recently to trim what they charge was BlueCrest Capital Management LLP, which said earlier this month it cut management fees on its USD8.2 billion computer-driven hedge funds to 1.5 per cent from 2 per cent after assets tumbled in the past year.
“In general, fees have come down over recent years,” said Celia Choh, Singapore-based head of fund services for Asia at Wells Fargo Global Fund Services. In Asia, management fees are now typically between 1 per cent and 1.5 per cent for early investors, she said.
Fee negotiations “continue to become a more accepted practice for investors and managers globally,” according to the Deutsche Bank survey. Seventy-four per cent of respondents said they negotiate fees, up from 51 per cent two years earlier.