By Aradhna Dayal
This summer, I
finally decided to set aside some time from the hustle and
bustle of the Asian hedge fund world and do a course on Global
Strategic Management at Harvard Business School. Walking
through the leafy environs of the HBS campus and watching the
rowing teams glide on the Charles River at sunrise, I was
struck by the fact that what Asian hedge funds really need as
the next stage in their evolution is to step away from the
noise of day-to-day trading and think about how to successfully
With that in mind, I had extensive discussions with some of
the highly impressive and erudite professors at HBS, as well as
veterans of the Asian hedge fund business in the US, and was
intrigued to learn that very little research or strategic
thinking has been done on true global expansion by hedge funds.
In fact, it is thought that the hedge fund industry does not
lend itself well to globalisation, given the highly specialised
strategies (geographic- and asset class-wise) that form the
backbone of the industry.
Indeed, there are very few examples of hedge funds that have
truly traversed global boundaries. Despite all the talk of
institutionalisation, perhaps this is because hedge funds
(especially in Asia) remain a cottage industry at heart. Even a
fund running a couple of billion dollars will often still
employ only about 20-30 people – typically a close
knit, like-minded group. The business tends to be very people-
and culture-centric, which means that finding the right culture
carrier to take the business to new countries is challenging.
Finally, key success factors – specific skill sets,
trading niche and manager reputation – are not often
transportable across borders and make globalisation near
impossible for hedge funds.
In Asia, we have seen a couple of rounds of entry by US and
European hedge funds – the first between 2005 and 2008
(with a significant retrenchment when the global financial
crisis hit) and the second post-crisis, when these funds
decided to put together sustainable, long-term plans for Asia.
Even then, most are still in a testing-the-water phase, having
a small staff that does research and marketing – and
trading, if at all, only mostly just the Asian allocations of
their global portfolios (though many do aim to have
Asia-dedicated products in due course).
A few exceptions to this have been firms such as Marshall
Wace (which has successfully followed a hubs-and-spokes model,
including its joint venture with GaveKal), as well as the likes
of Och Ziff, CQS and (up to last year) Highbridge, which ran
significant assets via large Asia-based teams with Asia
Asian funds have also been blueprinting roadmaps for their
global aspirations, but the question really is: what does
globalisation really mean for them? Does it entail firms such
as Value Partners that aim to be recognised as a global asset
manager specialising in Asia? Or managers such as LIM Advisors
(with international sales/trading offices) that have more
universal recognition among global investors? Or players such
as Ortus that trade global currency markets out of Asia?
As my learned professors at HBS would tell you, the key to
globalisation is through aggregation, adaption and arbitrage
(the so-called 'AAA strategy’) – the
route Asian hedge funds need to take when going global. Grow
organically, concentrate on core activities (such as back
office, research in a central, low-cost location) to achieve
economies of scale, and add new revenue lines leveraging
existing infrastructure. In short, aggregate.
Adaptation in new markets is crucial too, and should be done
through actively hiring local professionals rather than
transferring teams from headquarters (a good example being the
China managers moving into Hong Kong, or firms like SAIL
opening New York and London offices).
Finally, arbitraging a skills and knowledge base from the
home market into new markets can be highly beneficial. A good
example, in my mind, is Fortress, which moved star macro
manager Adam Levinson from New York to Singapore last year to
run an Asian macro strategy, using his extensive experience in
the US running a similar global strategy.
In line with our globalisation theme this month, we bring
update on True Capital Partner, a Hong Kong-based
volatility arbitrage fund that trades via a single global book,
Taconic, which is moving into Asia using an old Asian hand.
We also bring you a
Q&A with Permal Group chairman Isaac Souede on how the
US elections could reshape the macro climate globally. Finally,
we have the
AsiaHedge New Funds Survey for the first half of 2012,
which shows that 32 funds raised $2.02 billion in that