Full steam ahead—again—in Asia

Fri Dec 18, 2009

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A look at Asian hedge funds' boom/bust cycles.

By Neil Wilson

According to many commentators, the world stands at the threshold of a historic transfer of power—as the "American century" just gone gives way to the "Asian century" ahead. These experts may well be right and the engine of world growth will move from the debt-ridden western consumer over to the young and thrusting economies of the East. But the process certainly seems to be a volatile one, and this is apparent nowhere more than in the hedge fund business, where the Asian market only seems to operate on one of two possible settings— red-hot or ice-cold.

The Asian hedge fund business is peculiar in various respects. For one thing, no single center dominates the way London dominates in Europe or New York in the Americas. Indeed, at least until very recently a significant minority of Asian hedge funds have actually been managed from outside the region—up to 40% or so by assets, and including many of the biggest players, such as Tiger Asia, Indus and Joho from the United States and Sloane Robinson from the UK.

Hong Kong and Singapore have certainly been growing in importance in the past year or so. But the industry operating within the region is still made up mainly of smaller and medium-size boutiques. And there is much less variety in strategies than you would find in Europe or America, where there are many more fixed income, credit, macro, futures and multistrategy players. In Asia the regional business is dominated by relatively simple long/short equity funds, and they often run with a pronounced long bias.

When the credit crunch struck in 2008, this relative lack of diversity was one reason why Asian hedge funds were hit even harder than funds elsewhere. Given their high exposure to equity markets, Asian funds generally performed worse than those in the other regions. And owing to their generally easier liquidity terms, they also suffered heavier net redemptions as well.

The result was that Asia-Pacific hedge fund assets plummeted by almost 40% in barely a year—from close to $200 billion in early 2008 to less than $120 billion by mid-2009, according to AsiaHedge surveys. There was also a big decline in the number of new funds. Only 26 were launched in the first half of 2009, down from 39 the year before, and these only raised a fraction of the assets that their predecessors had done.In the first half of 2008, the new funds had raised nearly $2 billion; in the first half of 2009, the aggregate that they raised dropped to only $776 million.

But recently—in a development that typifies the region's amazing stop-start boom-and-bust cycles—hedge funds in Asia seem to have risen yet again like a proverbial phoenix from the ashes. Following the market turn last March, performance has come roaring back—and a whole new wave of major start-ups has lined up for launch.

For the first 10 months of 2009, Asia-Pacific hedge funds were up by a respectable median average return of 13.17%. But their mean average was a much punchier 20.73%, with many recovering a big chunk of their losses from the previous year and climbing back toward the high-water mark, and in many cases well above it.

A sudden flood of new funds has also suddenly arrived on the scene. A number are from managers who previously ran regional offices for big global groups. Among them are: John Ho, who previously ran the Hong Kong office for The Children's Investment Fund; Stu Wilson and Teall Edds, who previously headed the Stark operation in Asia, and who have now launched Orchard Capital Partners; Nick Taylor, previously at Citadel, who recently launched Senrigan Capital; plus Anthony Correa and Hani Abuali, who previously ran the Polygon Asia operation and now plan to launch Black's Link Capital.

Some managers who previously ran Asia funds but shut them down in the crisis are also coming back, including Davide Erro, who previously ran Gandhara, and Bernard Oppetit and Randel Freeman, whose London-based Centaurus Capital is now relaunching its Asia Pacific Opportunities strategy.

Perhaps the biggest indication of renewed enthusiasm for Asia is the news that Anthony Bolton, a famous long-only manager who ran the Fidelity Special Situations fund for many years in the UK, is relocating to Hong Kong to launch a new China-focused strategy.

There is arguably more excitement about Asia in the hedge fund world than about any place else right now. But history of course shows that the market is always quick to change, and that this is especially so in the case of Asia. AR

ISSN: 2151-1845 / CDC10004H

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