By Aradhna Dayal
What a difference a
year can make. In the US for my annual trip to meet investors
and US-based Asian fund managers, I couldn’t help
but marvel at the pace of the recovery in the country.
On the streets of New York, the mood is vibrant, restaurants
are booked out and a quick lunch detour to Saks Fifth Avenue
shows the store doing its briskest business I have seen in the
past few years. Consumer confidence is clearly back in the US,
backed by buoyant markets, bulging bonuses and a housing
recovery that is touching one and all.
In the suburbs of Boston – the seat of old family
money and home to some of the largest (and most understated)
allocators – and in Connecticut, often seen as the
mecca of hedge funds, housing inventory is almost nil, as
asset-starved Americans lap up homes once again.
The manufacturing renaissance is well underway in the US,
corporate are replete with excess cash on their balance sheets
and states like Michigan are adding jobs for the first time in
30 years. The financial crisis and severe recession are a thing
of the past and the buzz reminds one of evenings in Dubai.
Another game-changer that has allocators rooting for the US
again is the low energy costs and the competitive advantage
that it will get from low-cost shale gas. The country is
already producing 23 million barrels a day of oil and gas
– slated to increase to 30 million barrels a day by
2020, which will lower costs and increase exports
This has two implications: every 10 cents that get taken off
from the per-gallon gas price results in a $12 billion boost
for the US government’s budget deficit; and, as
the US becomes a net exporter of cheap energy, the government
is likely to put a tax on it, which has the potential to
completely wipe out the budget deficit. Not surprising, then,
that in the investor circles, the US is jokingly being referred
to as 'Saudi America’!
On an industry-specific note, the return of the US has
significant ramifications for the Asian hedge fund industry.
Not only have the fundamental recovery and galloping markets in
the US turned US-based investors’ attention back
to US hedge funds – a group that also brings with it a
deeper pool of managers, wider experiences, scale and more
institutional set-ups – but it has also changed the
way that allocators want to play Asia.
While over the past couple of years, investors have made a
beeline for multi-strategy funds and diversified portfolios in
Asia, they are now looking for fundamentally-driven,
highly-focused, strategy-specific funds in Asia.
Asian special situations, event-driven and even arbitrage
strategies are much in demand among global allocators these
days, as they look for differentiated ways to gain exposure to
Asia. And among equity managers, there is a clear preference
for those with high-conviction, concentrated portfolios.
As one allocator said, if he has to leave behind the
familiarity of the US landscape and come all the way to Asia,
he would rather have his money with a manager’s 10
best ideas than with that same manager’s five good
and 20 mediocre ideas.
Manager quality, too, has emerged as a factor of paramount
importance once again, as investors begin to measure Asian
managers with the same yardsticks that they use for managers
Several of the allocators I spoke to have removed specific
Asia buckets from their portfolios and are instead placing
Asian managers in the emerging markets or global equity pools,
which essentially means that funds in Asia need to show the
same level of credibility, track record and institutional
set-up as their inter-national counterparts.
These trends are evident in the first-half 2013 AsiaHedge
new funds survey, which shows that only managers with
impeccable quality and specific strategies have been able to
launch and raise meaningful assets this year. There has not
been a single mega-launch so far this year, and while this may
change in the second half, indications are that capital-raising
will continue to be challenging. Overall, 32 Asia-focused new
funds raised a little over $1 billion in assets in H1 2013.
In line with this focus on quality, we also feature in this
issue of AsiaHedge stories on several high-potential new and
upcoming Asian managers such as Jinxin Dai, Mack Kazi, Nick
Zhang, Celia Farnon, Pradeep Swamy, Qiang Dai and Vijay
Finally, the inaugural AsiaHedge China Forum is gathering
steam and we bring you the latest on the high-profile speakers
that will be taking part in this exciting landmark event in
Shanghai on 12 September.