Aradhna Dayal, editor
Phew, what an eventful 24 months we've had. As I take over the
editor's role at AsiaHedge, I can't help but marvel at the
scale and speed of events we probably get to witness only once
in a lifetime: markets imploding, a barrage of hedge funds
going belly up, industry assets almost halving, then a
lightning recovery in markets and the beginning of a slow
healing process for Asian hedge funds.
On the surface, all signs look positive. Starting in
mid-2009, we've seen investor interest in Asian managers
resurge, several high quality launches get off the ground,
performance coming back, a large chunk of managers moving above
their high water marks and rekindled hopes of capital inflows
rushing back into Asian hedge funds in the second half of the
However, this may not necessarily be calm waters,
rather the eye of a storm that we are in - one that may lead to
another wave of consolidation by the end of 2010.
True, capital is now coming back in. But anecdotal
evidence suggests that it is going to a highly concentrated
pool of managers - either the large-scale international players
with a significant presence in Asia (such as Och Ziff and
Highbridge) or to a handful of emerging home-grown managers
(such as Senrigan) that combine impressive track records with
institutional grade infrastructure.
There are several other forces working towards
a potential consolidation. Increasing regulatory oversight
and demand from investors for world-class operational systems
is escalating costs for managers significantly. Put that in the
context of the comparatively smaller asset size and boutique
nature of Asian hedge fund managers, and you see a real
dichotomy. Especially as investors today want to see managers
reach a certain scale in terms of assets and business
sustainability before they write them a ticket.
Consequently, start-ups and smaller managers are beginning
to realise that it will be a long road to third-party asset
raising, and those not able to reach a certain size will either
fade away or turn into quasi-family offices. Some may opt for
the platform route while others, especially highly skilled
teams in niche areas, may merge with or get taken over by
heavyweights wanting to establish a quick presence in Asia.
Either way, there is a clear power shift in favour of
investors, seeders and platforms, as clearly shown at the 2010
AsiaHedge Forum (click
here for full report).
And yes, the profile of the successful Gen Next manager is
also different this time round. They will combine astute
investment skills with the chutzpah of a savvy business
manager. They will probably be based in Asia (the recent
AsiaHedge asset survey shows over 70% of assets in
Asia-focused funds are now managed from within the region)
and understand the fragmented and relationships-oriented nature
of Asian markets.
The two fund profiles in this issue are key and contrasting
examples of these trends. While Orchard Capital epitomises the
optimal mix of seasoned investing with sophisticated risk
mitigation and operational systems, Argyle Street Management
gets its edge from its deep relationships-oriented
approach to investing in Asia.
But if you think that the Asian hedge fund industry has seen
it all, think again. A major wave of regulatory changes,
unleashed in the US and quickly adapted by regulators across
the world, could be set to rewrite the rules for not just
banking but the hedge fund landscape too.
Similar to their global counterparts, Asian hedge funds
could very well find themselves in a completely new regulatory
and business climate two or three years down the line, and the
key to success there will be the agility with which they adapt
their investment and business models to it. It will indeed be a
In recognition of the changing landscape, AsiaHedge is
introducing two new sections starting this month. The first,
Investor Corner, will capture major trends in capital
inflows within Asia and delve inside the minds of investors
allocating to the region.
The second section debuting this month is on
Regulation. It will cover key regulatory changes within and
outside Asia that could impact Asia-focused hedge fund
managers, and alongside addressing industry concerns, also
serve as a platform for the often misunderstood regulators to
explain the rationale behind their moves.
Going forward, AsiaHedge will continue to expand its
coverage to new alternative structures such as UCITS and hedge
fund-private equity hybrids, as it evolves into a complete
Asian alternatives publication.