Will Asia deliver the next generation of global hedge fund brands?

Tue Sep 21, 2010

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September always brings renewed vigour to the Asian hedge fund industry


By Aradhna Dayal

null It is the start of the conference and cap intro events season that lasts through the end of the year, and sees hedge fund managers put away their sailing gear and get glued to their screens again.

Alongside this, one thing that struck me on my recent travels in the region is that, talks of a global double dip notwithstanding, major Asian cities are seeing nothing short of an economic boom. There is an amazing degree of wealth creation, strong disposable incomes, robust consumerism and increasingly sophisticated risk taking among individuals, among other things. The gaming revenue from Singapores two newly opened (and resoundingly successful) casinos, for example, is expected to surpass that of Las Vegas very soon. This is clearly the Asian century!

The question that occurs to me then is: Will Asia give birth to the next crop of world-class hedge fund brands?

There is no doubt that the enormous wave of wealth in Asia will need to find a home, most likely with professional money managers. Add to that the highly fertile investment landscape in the region, and it is no surprise that the likes of Fortress Adam Levinson are contemplating a re-location to Asia from New York. Levinsons move, if confirmed, will be a major statement for the Asian hedge fund industry and its vibrancy, and arguably one of the first signs of a clear shift in the centre of the universe for the alternatives industry.

Asia itself has abundant local talent, which is spawning a select but steadily growing breed of sophisticated second generation managers such as John Ho (ex-TCI), Hyder Ahmad (BroadPeak), Davide Erro (ex-Gandhara) and Nick Taylor (Senrigan) all of whom have the ingredients of making their new firms world-class alternative investment names specialising in Asia.

So can we presume that this confluence of sparkling local talent and the Asian savings/Asian growth story, along with Asians propensity to take risks and put their trust in home-grown names, make Asia fertile ground for future global hedge fund heavyweights? And what would it take for an Asian shop to emerge as the next Paulson or Soros?

Well, in this business, as I myself put it to much laughter at the last AsiaHedge Forum, size matters. There are virtually no global hedge fund brands below $10 billion, but getting there is a monumental challenge still for any firm based in Asia. That said, it is not an impossibility, in my mind, if over the next 10 years the cash from under the mattresses in the region begins to flow into well-regarded, institutionally run Asian asset managers, giving them the scale critical to attract allocations from global pensions, endowments and other institutional investors. Two established examples of this would be Hong Kong-based Value Partners and Tokyos Sparx Group, both of which harbour global ambitions and have seen strong inflows this year, taking their total AUMs (including non-hedge fund products) to a highly respectable $6 billion and $6.9 billion, respectively.

Scale-up should also come through Asian asset managers using the strong cash flows of their parents and backers to acquire large US or Europe based hedge fund shops complete with world-class operations and infrastructure another key ingredient for a global brand. Do not underestimate the purchasing power of the Asian families/corporate groups global M&As by Asian firms have already been grabbing headlines in areas such as automotives and steel, and its only a matter of time before they come to the alternatives space.

True global hedge fund brands also usually require a star portfolio manager/trader, with a pedigree akin to Julian Robertson or John Paulson. Only time will tell whether such legends will emerge in Asia, but there are already some industry leaders in the region such as Value Partners Cheah Cheng Hye and Sparxs Shuhei Abe who are good examples of home-grown managers with a real passion for managing money and building businesses for the long term, rather than for short-term windfalls. We cover growth plans for both of these groups in our September issue.

Starting this edition, AsiaHedge also introduces a section on UCITS funds, tracking the latest developments in this area in Asia. A special feature on UCITS this month also debates how suitable the structure is for Asian strategies.

Finally, a key feature of our September issue is the AsiaHedge asset survey for the first half of 2010, which shows that industry assets remained more or less static in the first half of the year, confirming our theory that slow capital inflows and continued redemptions have stalled the nascent recovery we had seen late last year. It will be a slow climb back for Asian hedge fund managers.

ISSN: 2151-1845 / CDC10004H