By Aradhna Dayal
On Christmas Eve, a
strange phenomenon was observed in India – Santa Claus
look-alikes were seen handing out onions as Christmas presents;
with prices of this staple vegetable skyrocketing to $2 per
kilo, onions seemed to be at the top of everyone’s
wish list. Known historically to bring down governments, the
onion crisis sent the state machinery into frenzied remedial
action – to save the day somehow.
Egypt unfortunately was not as lucky, and two months later,
rising food prices fuelled an unrest that has since spread
across the Middle East and North Africa like wildfire, and is
threatening to not just bring about a new geopolitical world
order, but also force dramatic shifts in the investment
landscape over the next 12 months.
Oil prices are already soaring following the Middle East
crisis, and this will have a domino effect, likely impacting
emerging markets significantly. Rising energy prices will spark
a fresh round of inflationary pressure in most emerging market
economies, and governments will have little choice but to
resort to accelerated monetary tightening policies. China and
India – the two pillars of the Asian growth story
– are classic examples of this and will undoubtedly be
hit by a resultant economic slowdown that may hit all emerging
For Asian hedge fund managers, who are just beginning to see
serious capital flow back into the region (following a
prolonged period of inactivity), this is not great news. As
emerging market equities get hit and fund performances get
impacted, there is every chance that international allocators
will pick up their cheque books and head back to developed
For an industry that got hit hard by the global financial
crisis (assets almost halved from the 2007 highs of $190
billion), and has since then worked hard at rebuilding itself,
a second exodus may prove fatal. Especially because this time
round there is very little locked up capital.
In short, there is every chance of Asian managers getting
onioned twice over.
Indeed, it is estimated that almost half of the capital in
Asian hedge funds (a majority of which is new capital that has
flown back post crisis) is not locked up. The reality of today
is that if you are a star trader or a well known
second-generation manager, you can probably negotiate for a
one- or even two-year lock-up. But small to mid-size managers
are hard pressed to find investors that will accept anything
but monthly liquidity.
This makes me wonder as to what would happen if the EM-DM
trade accelerates in the hedge fund space, and how vulnerable
Asian managers are to a situation like that, should it arise
again? The answer, when it came to me, bowled me over with its
simplicity. Just as the ubiquitous onion is known not just for
its pungency but also for its medicinal value, I feel that the
capital exodus back in 2008-2009 has made the Asian managers a
lot more resilient, alpha driven and astute about business
building, and this could well save the day.
To start with, Asian managers have rebuilt their investor
bases more carefully this time round, matching investor needs
and liquidity profiles better with their strategies.
Early numbers also show that Asian funds, especially in the
more vulnerable small to mid-cap and single-country areas, have
maintained performances despite this year’s
Finally, new growth areas such as Renminbi-focused products
will also go a long way in keeping investors glued to Asia.
In line with this, we bring you a report on the emerging CNH
(Rmb traded in Hong Kong) market and how hedge funds such as
Dymon Asia are moving into it, plus a profile on Central Asset
Investments – a pioneer in the Asian multi-strategy
space. Celebrating the re-birth of the billion dollar launches,
we also bring you an exclusive on Benjamin Fuchs’
spinout from Nomura.
The March issue of AsiaHedge also contains the Asset Survey
for 2H2010, which reveals that with a 15% annual growth and
$152 billion in assets under its belt at end-2010, the Asian
hedge fund industry is on a solid track to recovery.
We look forward to seeing you at the AsiaHedge Forum in Hong
Kong this week.