Asian hedge fund industry contracts 5% in 1H 2011 to total assets of US$145bn

Mon Sep 26, 2011

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  • Recovery stalls as industry assets shrink 5% in 1H2011 to US$145 billion, triggering further consolidation fears
  • Assets slip due to combination of slightly negative average performance in the first half – as well as a drop in new capital inflows into Asian funds
  • However, redemption levels were  muted, reflecting a maturing capital base
  • Asset migration to Asia Pacific accelerates: Managers based within the region now run a record 76% or US$109 billion of total Asia-Pacific hedge fund assets
  • Hong Kong fortifies its position as the largest management centre 
  • Investors move more assets into diversified pan-Asia (ex Japan) funds, making that the biggest fund category for the first time in Asia

Hong Kong, September 25, 2011  – The AsiaHedge Asset Survey for 1H2011 shows that the Asian hedge fund industry shrank slightly in the first half of the year to total assets of $145 billion, as compared to $152 billion at the end of 2010. This reflects a 5% decline in the industry assets and a reversal of the robust recovery seen since the severe financial crisis of 2008, primarily due to strong macro headwinds and weak markets.

"While Asian hedge fund managers showed remarkable resilience and downward protection through a turbulent first half of the year, defensive portfolios unfortunately clipped returns and investors started applying the brakes to capital re-allocations they had begun to make to the region barely a year ago," says Aradhna Dayal, editor of AsiaHedge in Hong Kong. "We need to remember though that at $145 billon, industry assets are still up 5% as compared to one year previously, and a recovery in sentiment and markets could well re-ignite the positive trend."

The positive news, however, is that redemptions this time have been fund-specific and not the sort of large-scale, industry-wide redemptions as seen in 2008. "Asian hedge funds have strategically reworked their investor base over the past three years and the presence of much more institutional, long-term capital this time round has been the single largest factor working in favour of the industry," says Dayal.

Interestingly, Asia-based managers now run US$109 billion or a record 76% of the industry assets. "Several factors are propelling this trend. These include the growing AUM’s of the increasing number of locally-managed spin-offs and established big boys in Asia, as well as an increasingly serious commitment by global hedge funds to their Asian offices," notes Dayal.

Hong Kong consolidated its position as the largest centre for the management of Asian hedge fund assets with a nearly 27% of the market share—a reflection of its status as the international hub for the CNH (offshore Renminbi) market, a well regulated destination with few shorting restrictions and smooth access to the region’s top talent as well as China opportunities.

Meanwhile, Asia ex Japan equity hedge fund strategies emerged as the largest fund category in Asia in 1H2011, with US$28 billion in assets.

Looking forward, AsiaHedge sees a relatively tough second half for the Asian hedge fund industry, with managers needing to bring back the performance to keep investors committed. "We expect capital inflows to remain tepid in the coming months, but believe that a speedy resolution of the issues in Europe and the US will prompt investors to deploy their heavy cash reserves and re-accelerate the industry growth," says Dayal. "Sustainability of businesses, institutionalisation and adaptation to new regulatory regimes will emerge as key concerns for managers."

For more information, please contact:

Sophie Sophaon
Walek & Associates (Hong Kong) Limited  
Telephone: +852.2273.5102 / Mobile: + 852 6112 7553

Aradhna Dayal
Editor, AsiaHedge
Telephone: + 852 2551 2444 / +852 9231 3350


ISSN: 2151-1845 / CDC10004H

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