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Asia ex-Japan hedgies fall in April, Riley Paterson shutters fund and China’s CSRC considers letting the big crocodiles in

May 10, 2012
- 8:51 pm

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Asia ex-Japan hedge funds ended April down an estimated -0.58 per cent according to figures in the Eurekahedge index, leaving them up 4.84 per cent for the year.

Asia ex-Japan hedge funds ended April down an estimated -0.58 per cent according to figures in the Eurekahedge index, leaving them up 4.84 per cent for the year. In contrast, Hedge Fund Research’s HFRI Asia ex-Japan Index recorded a loss of -0.19 per cent last month to leave them up 7.20 per cent. The average global hedge fund is up around 4.40 per cent in 2012 (compared to a 7.7 per cent gain YTD in the S&P 500), which is already starting to look ominously like 2011: a strong start followed by a loss of momentum as the eurozone crisis unrivalled. With the threat of a Greek exit now more likely than six months ago, macro headwinds are likely to continue blowing across global markets. Digging in a little deeper, although Eurekahedge’s figures are still preliminary it would appear that relative value (1.12 per cent) and event-driven (1.06 per cent) were able to make some gains last month, whilst a lack of clear trends across assets – particularly in FX markets which have been largely range-bound in 2012 – saw CTAs drop around -1.67 per cent.

With China’s regulators potentially allowing hedge funds for the first time to trade in mainland stocks and bonds – in yet another sign that China’s capital account is opening up – it could well be a highly propitious time for HSBC’s Melvyn Ford. This week, Ford was named as Head of Prime Services, Asia. Based out of Hong Kong, the gateway to China, Ford will oversee the expansion of HSBC’s prime brokerage business; it’ll be interesting to see the impact China’s emerging hedge fund industry will have on the city over the next few years. One thing’s for sure: more global hedge funds are likely to continue opening up there. Ford brings 17 years’ Asia experience to the table having previously built and run a Prime Services business at both BoAML and Deutsche Bank. “Prime Services is a key initiative for HSBC, and with the strategic importance of the Asian market, we are keen to ensure we have a high quality team in place,” commented Paul Hamill, Global Head of Prime Services.

Back to China, and as Reuters reported this week, the hedge fund landscape could be changing. Hedge funds, which translate as ju e or ‘big crocodiles’ according to an article last October in the Economist, have been viewed with the same caution and weariness as their aquatic namesakes in recent years on the mainland, no doubt because of the ‘08 financial crisis. The China Securities Regulatory Commission (CSRC), though, are steadily changing tack. It is believed that they are considering a proposal to lower the bar for obtaining a licence that allows foreign investors to trade domestic securities: referred to as a QFII (pronounced ‘Q-fee’) licence; Qualified Foreign Institutional Investor. The net might also be widening on the types of investors that can qualify for such a licence: you can almost hear hedge funders’ delight at the prospect of tapping into a securities market with an estimated market value of USD4.1trillion. “The time might be right for them (sophisticated investors in China) to consider some of the more established hedge funds to also get access to China through the QFII licences,” Ken Yap, director at research and consultancy firm Cerulli, was quoted as saying.

Up until now the CSRC have been reluctant to issue licences to hedge funds that meet the strict criteria. For example, Och-Ziff Capital Management applied for QFII status a few years ago but still doesn’t have one. Under current QFII rules, an organization must have at least USD5billion in AUM and must have been in business for at least five years. Few Asian hedge funds would therefore qualify. But if the criteria do end up being lowered there could be a veritable ‘bask’ of crocodiles swimming up the Pearl River Delta.

Finally, Riley Paterson Investment Management Pte has decided to shutter its only hedge fund on the back of shrinking assets. Co-founder Daren Riley told Bloomberg via email that assets under management looked as though they were going to USD30million by June this year, adding: “We feel it’s better to return the money to investors than being forced to cut resources employed below the high standard all our investors deserve.” At its peak, as of end-January 2010, the Riley Paterson Asian Opportunities Fund’s assets were USD335million. By March this year they had fallen to USD47.9million.

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