By Aradhna Dayal
Travelling across the US for over two weeks last month, I had the privilege of meeting several legendary hedge fund managers as well as some of the world’s largest allocators (including university endowments, pension plans, family offices and funds of funds), and hearing their views on Asian investing. Four cities, 45 meetings and several near-cancelled flights later, I have to admit I felt a little like Mel Gibson in the 2000 caper, What Women Want.
Based in Asia and witnessing the phenomenal growth that is happening around us, it is easy for us to brand the region as the centre of economic and geo-political growth, and expect global allocators to fall over each other to access the region. However, much like the post-epiphany Gibson in the film, I soon realised that while there is considerable interest in Asia as a region among US investors, there is a big information gap as far as the Asian hedge fund landscape is concerned. And often it is this perception of opaqueness and non-familiarity at the markets and manager level that creates the biggest barrier to large-scale allocations by US investors into Asia.
At a basic level, many US investors still like to see a Warren Buffett-style, long-term, value/fundamentals-driven approach in the hedge fund managers they invest in. Unfortunately, the perception of Asian managers tends to be one of momentum-driven and speculation-oriented traders rather than fundamental, long-term investors, and that presents a huge challenge to US allocators when making ticket-writing decisions.
Second, most US investors I spoke to lamented a lack of real shorting books (especially using single stocks and not indices) run by Asian managers. While this may be in part due to the high cost and/or difficulty of shorting in some Asian markets historically, as well as a paucity of shorting opportunities in Asian markets at present, much also stems from a lack of shorting skills at the manager level. Combine that with an admirable cost-conscious nature that many of these allocators exhibit, and it is no surprise that they often prefer to play the Asia story through long-only managers (at a fraction of the cost).
Interestingly, investors in the US make a clear distinction between Asia-based Asian hedge fund managers and their US-based counterparts, based primarily on the above two factors. Many US-based Asian managers are viewed as being more fundamentals/value-oriented with true alpha generation on both long and short sides. Prime examples of these would be Brian Kelly’s ACQ, Ted Kang’s Kylin, Dalton, New Vernon, Tiger, Joho, Standard Pacific and Indus (and indeed, several of these managers that I met confessed that their strategic advantage probably came from being away from the “noise” and “volatile sentiments” that surround their Asia-based counterparts, thereby allowing them to pursue a more fundamental style of investing).
Combine that with the proximity to the team and ample opportunities to “understand their investment culture” and one can understand why so many US investors make their Asia allocations to the ACQs and Kylins of this world.
Consequently, what started for me as a fact-finding mission about US perceptions on Asian investing soon turned into a roadshow for the Asian hedge fund industry as I tried to impress upon investors the dramatic evolution of Asian hedge fund industry into its new, more institutionalised avatar – which is remarkably different from its more boutique, beta-chasing nature barely three to four years back.
Today the Asian hedge fund landscape can boast of several indigenous, seasoned second-generation hedge funds capable of generating alpha across market cycles and asset classes. Many newer managers such as Janchor, Dymon, Senrigan, Kilometer, Vulpes, Turiya and Trivest are showing sophisticated asset-building, operational and investment styles that compare well with their global counterparts.
The question, then, is when shall the twain meet? As I mentioned in a speech to more than 100 hedge fund professionals on the West Coast, the key to breaking down these barriers would come from the Asian hedge fund industry itself; as Asia-based managers demonstrate a deeper pool of institutionalised platforms, longer-term portfolios, and indeed turn into global brands, it is only a matter of time before Asia emerges as a more mainstream asset class with US allocators.
This is a cause close to my heart – and one AsiaHedge has championed for a long time. As a platform bringing together Asian managers, international investors and global policy makers, we indeed feel privileged if we can play even a small part in facilitating this landmark change.
The 10th annual AsiaHedge Awards, recognising the best funds on a risk-adjusted performance basis, will be held on 20 October in Hong Kong. We look forward to seeing you there.