By Aradhna Dayal
As we had predicted, the frosty winds of consolidation are once again beginning to blow through the Asian hedge fund landscape, and one can feel the chill even through the searing heat of the Asian summer. Just since my last editorial, we have heard of about at least six to seven closures, mergers and scale-backs of funds, with murmurs of several more - leading us to believe that, over the new few months, industry consolidation will begin to lay its cold hands on a sizable chunk of the mid-size, mediocre performing funds that have been unable to scale up.
We are also hearing of several long-running, well-established Asian managers bleeding assets, including a prominent Australia-based fund and a Hong Kong multi-strategy fund shop with a solid pedigree. This leads us to believe that investors, given the current macroeconomic climate, are being very selective about where their capital goes - and have no qualms reallocating it if the performance is not there. Apart from that, the obvious factors, such as higher than ever operational costs, slim inflows and the opportunity cost of running a fund for far too long with little returns, is making many entrepreneurial hedge fund managers rethink their whole approach.
Among the most prominent fund closures of the season has been ex-Fortress Asia head Stanley Ku's Minerva, which is also understood to be closing down its macro fund and returning the capital to investors. Seeded by Man Investments with around $50 million, it was one of the most watched fund launches last year, and its closure signals the rising barriers to entry in a market where size for success is getting to be a major factor. Other examples of consolidation are evident in the form of Hong Kong-based hedge fund platform Gen2 Partners taking over two funds from Infiniti Capital and US volatility specialist Vicis Capital shuttering its Hong Kong office.
If this trend continues, I see the Asian hedge fund industry becoming polarised over the next couple of years, with large, multi-manager/multi-funds asset management brands dominating one end of the spectrum, while the boutique, single-manager alpha-generating vehicles at the other - in short, a classic barbell! Investors will then often have to make a choice between the heavyweight brands and heavyweight managers, and that should make for an interesting gym watch.
Given the above evolution, it won't be surprising if the middle space of the spectrum (which was densely populated by the plethora of $50-100 million launches in 2007-early 2008) will be cleared out, most likely migrating towards a platform structure. Platforms vary but tend to offer all the basic benefits - back office, marketing, research support and sometimes even capital - which could be a fairly sensible option for many managers as of now. In fact, by the end of the year, we will no doubt see many of the mid-size funds that have found it hard to garner acceleration capital, hopping onto these platforms before the redemptions train leaves the station.
With this in mind, in our latest edition we profile Marshall Wace - a classic example of a multi-fund, well-established hedge fund platform in Asia that has used a wide product menu and top-of-the-line proprietary information system to attract highly talented portfolio managers and build its success in Asia.
A major highlight of our July/August issue is a Q&A with Martin Wheatley, the CEO of Hong Kong Securities and Futures Commission, whereby this candid and progressive regulator talks about some of the key regulatory changes we can anticipate going forward.
Another key feature of our July/August issue is the AsiaHedge New Funds Survey for the first half of 2010, which shows that despite the tough environment the new fund launches raised as much as $2.13 billion. This throws up an interesting quandary, given that inflows to the region remain very selective. A closer look at the numbers, though, reconfirms AsiaHedge's earlier theory that there is considerable recycling of assets underway in the region. Add to it the residual effect of consolidations and it is clear that it is the redistribution of capital rather than net new allocations that has led to startlingly high asset raising by new launches in the region. In short, a ray of optimism for uber strong launches, but still not enough reason to pop open the bubbly.
With such evolution and paradigm shifts underway, one thing is clear. The Asian hedge fund industry will have to undergo a massive reinvention, and strive for excellence to emerge leaner, meaner and more responsive to investor/client needs. We at AsiaHedge are no exception, and following on from several innovations to our print edition recently, we have just re-launched our website (www.asiahedge.com) in a much more structured, interactive and easy-to-read/easy-to-research format. We look forward to your feedback on the same.