By Aradhna Dayal
On my annual pilgrimage to London recently, I had the privilege of attending the InvestHedge Forum and hearing some of the world’s largest investors outline their allocations strategies amidst the changing world order. A sense of disbelief and exasperation over the lack of political will to resolve the Eurozone and US crises aside, what struck me was a prevailing sense of calm within the investor community. As against talk of a wholesale exodus from hedge funds, market dislocations or typical manager-bash ing (as seen in 2008), investor concerns were centred around more specific issues today – such as sustainability of businesses, identifying real alpha, regional intricacies and innovative investing ranging all the way from EM/DM to frontier markets and to social investing.
What surprised me even further was the level of commitment to Asia exhibited by almost all European and US investor groups that I talked to. Indeed many of them highlighted plans to either open offices or bolster their presence in the region, so as to get better access to best deals and/or managers or an early mover advantage in the Asian markets. It seems that in a world full of economic and political upheavals, Asia has emerged as a sort of White Knight, perhaps one of the very few regions in the world where the fundamental growth story remains intact, banks stay well capitalised and where a phenomenal creation of wealth is unleashing domestic demand that in a couple decades look set to overtake that of the Western world.
Asian hedge fund managers have not disappointed either. As early as May 2011, a bulk of managers we spoke to had moved into fairly low net exposures, low leverages and active short-term trading, thereby being better able to deliver downside protection and reasonably resilient portfolios amidst the wild market gyrations that panned out over the summer. Consequently, while we did see sporadic redemptions at the fund level, there has been no evidence yet of industry-wide redemptions this time round, making the scenario very different from 2008 when incessant capital flight gave Asian managers sleepless nights and wrecked havoc on the asset bases of the largest Asian funds.
The question now is: how long will the investor romance with Asian hedge funds continue? Will it result in a long lasting union or, if performance doesn’t come back by year end, lead to bitter break-ups once again?
The answer really lies first in the changing dynamics of regional growth – and secondly in the composition of asset bases for Asian managers. A big difference between 2008 and now is that global investors have started appreciating the complexities that come with the Asian growth story (such as the changing geo-political order, fragmentation, currency revaluations, high inflation, fiscal tightening, evolving capital structures and so on), and are now finding managers that can play them to their advantage. Another key change today is that investors can find managers that can generate alpha on both the long and the short side in Asia.
Furthermore, the success of Asian managers in transitioning their asset bases from being heavily fund-of-funds biased to having more stable, long-term capital, should prove to be a key success factor in sustaining their businesses. Fortunately, Asian hedge funds have worked hard at reworking their investor bases over the past three years, and the industry today boasts a significant amount of institutional (often US-centric) capital that has made its way into the region. Many of these institutional investors have handpicked strategies and managers in Asia in line with their risk/return profile following extensive due diligence, thereby reducing the risk of withdrawals on short-term volatility.
In line with these new investor requirements, the September issue of AsiaHedge features several outliers that have shown fortitude and resilience amid the turmoil, and are presenting the new face of a maturing Asian hedge fund industry that is more than worthy of long-term capital alliances with global institutional allocators. These include Monsoon Capital, Sinfonietta, Ferrell, BIA Pacific Macro, Vulpes and Trafalgar Copley. Also see updates on key new launches and comebacks such as Myriad and Cannizaro.
We also bring you an exclusive Q&A with Sparx founder and Asia veteran Shuhei Abe, on his focus on new investment themes such as renewable energy. Plus we release the AsiaHedge Asset Survey for 1H 2011, which shows a slight contraction in the industry at $145 billion.
Finally, AsiaHedge is announcing final nominees for its 10th Annual Awards night that will be held in Hong Kong on 20 October, and raise a toast to the best performing funds of the past year. We look forward to seeing you there.