developed world has been in the doldrums since the financial
crisis, and conventional wisdom says the emerging economies of
Asia, led by China and India, will be the new drivers of global
growth. But even if the Asian economies do become more
influential or even dominant, will Asian hedge funds be more
influential as well?
It seems as if we have been predicting the rise of Asian
hedge funds for a long time. In truth, it hasn’t
happened yet. From small beginnings in the late 1990s, assets
in Asian funds rose sharply over the years to reach nearly $200
billion at the peak in 2007, according to AsiaHedge data.
But during the financial crisis, Asian funds got hit at
least as hard as hedge funds in Europe and the United States.
And despite a modest recovery, they got back to only $138
billion by mid-2010—still only about 7% of the global
market by assets.
There are various reasons why Asian hedge funds have
remained something of a backwater in global terms, but also why
they may now finally be ready to join the big time.
The Asian hedge fund industry was particularly vulnerable
during the financial crisis for several reasons. It was an
industry of boutiques mostly running small funds and lacking
the so-called institutional standards demanded by hedge fund
investors today. Also, there wasn’t much variety,
with most local managers focusing on simple long/short equity
strategies, often with a pronounced long bias.
Most Asian hedge funds offer generous liquidity
terms—often monthly with no notice period, gate
provision or other ways to restrict redemptions. During the
crisis, this meant these funds got hit hard and fast with
Finally, Asian hedge funds have historically relied heavily
on capital from outside the region, in the early days mostly
from Europe and more recently from the U.S. This has made them
more vulnerable to the roller-coaster cycles of the Asian
markets, with foreign investors running for the exits whenever
performance takes a short-term dive.
So why may things be different this time around? For one
thing, the structure of the industry has been changing. Ten
years ago, a large proportion of Asian hedge funds were not
managed from within the region at all, but often from far away
in the UK or the U.S. Now, according to the latest AsiaHedge
figures, more than 70% of assets are managed from within the
region, largely in fast-growing centers like Hong Kong and
Singapore. This gives the industry much greater strength on the
Secondly, more major established global players are serious
about being in Asia. In the past, some big global players, like
the foreign investors, have blown hot and cold on Asia. One is
Citadel, which arrived on the scene in 2005 with plans for a
huge operation but then had to backtrack with its tail between
its legs after the annus horribilis of 2008.
During the past year, the latest wave of managers ramping up
a presence in Asia has included some of the oldest U.S. firms,
such as Soros Fund Management and Moore Capital Management, and
big players from Europe like GLG Partners and Pharo Management.
One significant recent move was the decision of a top portfolio
manager at Fortress Investment Group, Adam
Levinson—keynote speaker at the forthcoming AsiaHedge
Forum in March—to relocate to the region.
There is also a more institutional feel to the new wave of
start-ups in the region. Many of these are led by
second-generation managers who graduated from previous funds,
including players such as Senrigan Capital, launched by Nick
Taylor (formerly of Citadel) and which recently climbed to more
than $800 million, and Janchor Partners, launched by former
Children’s Investment Fund alum John Ho, which
recently reached $500 million.
The demand for such newer managers is still coming largely
from investors outside the region, but many of these are now
being driven by the realization that they need to increase
their allocations to Asia. This trend seems unlikely to change
anytime soon. And there are signs that regional investors,
including the hugely influential sovereign wealth
funds—many of which are already significant allocators
to hedge funds, but mainly outside the region—are no
longer sitting on their hands.
Asia will become firmly established as a major force on the
hedge fund map when two further pieces fall into place. Asia
needs to start developing its own range of brand names. Firms
like Value Partners Group, the $6 billion-plus firm based in
Hong Kong, seem well placed to lead that trend.
It also needs to produce its own hedge fund legends. Lei
Zhang, founder of the $3 billion Hillhouse Capital Management
group, is already on the cusp of that status following his
record $8,888,888 donation last year to the Yale School of