Long/short equity and macro hedge funds offer best Asian investment opportunities… Hedge fund AUM hits another record…
Institutional investors performing due diligence on Asia-Pacific focused hedge funds may be best served homing in on long/short equity and macro strategies.
According to a recent report from Cambridge Associates: “Investing in Asian Hedge Funds: Opportunities and Challenges”, which notes that other strategies, like distressed credit and event-driven, may not pay off in Asian markets like they do elsewhere.
The report underscores the fact that investing in Asia-focused hedge funds requires a different framework than institutional investors typically use in other regions' markets.
"A hedge fund strategy that makes sense in Western European or American markets will not necessarily be applicable in Australia, China, or elsewhere in Asia," says Damien Tan, managing director and hedge fund specialist in Cambridge Associates' Singapore location.
"The reason institutional investors need a different perspective on hedge funds in Asia is the character of the markets. Despite the sophistication and diversity of opportunities in Asia-Pacific markets, they generally experience lower liquidity, higher market volatility, and different regulatory constraints than markets in Europe and the US.
"These differences, plus the limited number of managers, have significant implications for four prominent hedge fund strategies in an Asia Pacific context: long/short equity, macro, distressed credit, and event-driven.”
The most promising strategies according to the report include: Long/short equity, Macro, Distressed credit and event driven strategies.
"On a case-by-case basis, distressed credit and event-driven strategies can be attractive to explore; but time and resources are probably better spent researching long/short and macro," says Tan. "We do expect the general long-term potential of Asian hedge funds to grow even more promising as regulatory and legal frameworks continue to take shape."
The September 2014 Eurekahedge Report has been released and shows that hedge funds are up 4.16 per cent year-to-date, registering performance-based gains of USD52.2 billion while seeing net asset inflows of USD70.9 billion in 2014.
Asia ex-Japan hedge funds are on track to outperform their global peers yet again and are up 7.26 per cent year-to-date. European hedge funds have seen their AUM grow by 8.63 per cent this year, attracting USD32.2 billion in net asset flows as at August 2014 year-to-date despite muted returns of 1.41 per cent over the same period.
Long/short equity funds lead in terms of capital raising with net asset inflows of USD60 billion, followed by USD16 billion for fixed income and USD13 billion for event driven strategies year-to-date. CTA/managed futures hedge funds delivered the best return among all strategies in July, up 2.41 per cent and 4.53 per cent year-to-date though investors have redeemed USD12 billion from the strategy in 2014 alone.
India investing hedge funds continue to record strong gains, reporting their seventh consecutive month of positive returns – up 2.54 per cent and 28.52 per cent year-to-date.
Hedge funds rebounded strongly in August to close the month up 1.30 per cent, trailing underlying markets as the MSCI World Index gained 2.48 per cent on the back of modest growth figures which were driven largely by an improving outlook for the US economy. August witnessed another renewed wave of investor optimism that continued to push global equity markets higher and volatility back down. Markets in Greater China and Japan ended the month flat to slightly negative as macroeconomic numbers from China pointed towards a slowdown in the economy but was seen to prompt more stimulus measures from the Chinese government.
On a year-to date-basis, Asia ex-Japan managers lead the table with returns of 7.26 per cent, attributing much of their gains to exposure to Indian equities, which has risen 25.83 per cent since the start of the year. Funds with a Latin and North American mandate vied for second place, delivering returns of 5.93 per cent and 5.63 per cent respectively. Japan focused funds returned 2.21 per cent while European managers came in last place at 1.41 per cent.
The asset weighted Mizuho-Eurekahedge Emerging Markets Hedge Fund Index posted the largest gain of 2.51 per cent, outperforming the MSCI Emerging Markets Index which rose 1.80 per cent. Latin American equities rose strongly during the month, with the Brazil IBOVESPA gaining 9.78 per cent. As at August 2014 year-to-date, the Mizuho-Eurekahedge Emerging Markets Hedge Fund Index has delivered total returns of 7.35 per cent.
Hedge funds ended August in positive territory with the Eurekahedge Hedge Fund Index up 1.30 per cent trailing the MSCI World Index which gained 2.48 per cent, with market volatility falling across the different asset classes.
Final asset flow figures for July revealed that managers reported performance-based losses of USD5.0 billion while recording net asset outflows of USD4.8 billion as hedge funds saw their largest monthly decline in assets under management (AUM) as at 2014 year-to-date. Preliminary data for August shows that managers have posted performance-based gains of USD12.9 billion while recording net outflows of USD0.2 billion, bringing the current AUM of the global hedge fund industry to a total of USD2.14 trillion – the highest level on record.
Goldman Sachs’ in-house Asia hedge fund has garnered USD1 billion in assets and closed to investors less than a year after its debut.
Oryza Capital told clients in June that it would stop accepting after capital commitments reached its capacity. The fund may reopen to investment in the future,Bloomberg News reports.
Oryza debuted in September of last year with USD80 million, helmed by Goldman Sachs Investment Partners’ Asia co-heads, Hideki Kinuhata and Ryan Thall. The fund is an opportunistic long/short strategy, investing across the region, including in Australia and Japan.
British asset manager City Financial Investment Co Ltd aims to double its Hong Kong staff and launch a second hedge fund to take advantage of increased investment in the region, Chief Executive Andrew Williams said in an interview to Reuters.
The asset manager has started discussions to form a new team in coming months, to add to the nine-person team already at City Financial's Hong Kong office, Williams told Reuters.
The new fund will focus on long/short investments in Chinese shares and Asian corporate bonds, Williams said. That strategy will "complement" the futures and derivatives strategy of City Financial's Counterpoint Asian Macro Fund managed by Geoffrey Barker, who was previously with Ballingal Investment Advisors.
City Financial, which manages USD2.2 billion (1.3 billion pounds) worth of assets, launched the Counterpoint macro hedge fund in May as a joint venture with Barker. At USD120 million, City Financial called the launch the largest of its kind in the region in the past year. As of Sept. 1, the fund had grown to USD150 million.
City Financial's latest launch comes as Asian hedge funds increase in size thanks to the appeal of improved performance this year. Net inflows to funds in the region reached USD4.1 billion this year as of August-end, with assets under management at USD157.3 billion, according to data provider Eurekahedge.