A year of change and challenge

Mon Nov 21, 2011

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The Asian hedge fund industry will continue to grow steadily, albeit restricting entry only to high-quality, long-term institutional managers


By Aradhna Dayal

nullAs 2011 draws to a close - the November/December issue of AsiaHedge is our last hard-copy edition for the year - it seems a timely moment to reflect on what has been a rollercoaster year for Asian hedge funds.

The year started on a buoyant note, with industry assets showing a healthy 15% recovery in 2010 and a steady flow of institutional capital - especially from the US - beginning to flow into Asia-dedicated strategies.

These factors set the scene for the emergence of Asia's very own home-grown, post-crisis billion dollar club - with several high-quality start-ups and re-launches, such as Senrigan, Janchor, MAM, DragonBillion and Dymon Asia, quickly reaching the $1 billion mark in assets.

Others such as Ortus Capital inched towards the landmark $3 billion mark, while new firms such as Azentus - the biggest launch of the year, now at nearly $2 billion - showed that Asian start-ups could rival their global counterparts in launch sizes and international appeal.

While the fact that Asia emerged as a beacon of hope in a world mired in macro uncertainties and rapidly deteriorating Western economies was a major driver in the resurgence of global interest in Asia, so too were factors specific to hedge funds in the region.

Most particularly, it was the new institutionalisation that Asian hedge funds embraced post the 2008 crisis - in terms of investment processes, risk control and infrastructure building - that helped to unleash allocations from some of the top allocators of the world.

A good example of this were the China-focused managers - historically seen as highly beta-prone - that embraced risk management and shorting techniques to protect the downside when volatility started rising again in May.

Starting in the second quarter of the year, when the Eurozone crisis began taking its toll on the market and the macro environment turned tricky for Asian hedge funds, managers went on the defensive and delivered what hedge funds are really meant to do - protecting capital for investors and displaying a mix of short-term trading, shorting skills and the exploration of niche areas from carbon trading to renminbi bonds to generate alpha in innovative ways.

The other major event that the Asian industry had to cope with, back in March, was Japan's earthquake, tsunami and nuclear disaster - the shockwaves from which hit financial markets globally as well as causing devastation in Japan.

What impressed me, however, was the sense of solidarity and the spirit of revival - so typical of Asia - that followed. Japanese managers and their families - many of them travelling to the AsiaHedge Forum in early March - were inundated with hosting offers from the Hong Kong and Singapore communities. Equally impressive, though, was the quick capitalisation by managers of once-in-a-lifetime investment opportunities in crippled sectors such as autos and food exports, as well as in areas such as new energy solutions and reconstruction.

So in many ways, the year 2011 will be remembered for the Asian hedge fund industry truly coming to age - and displaying a new-found savviness and adoption of all-weather strategies, which will go a long way towards dispelling widespread notions of all Asian hedge fund managers as being momentum-driven, boutique and beta-focused.

And yet, the challenges remain. Despite its rapidly growing educational, entrepreneurial, affluence and consumerism culture - key ingredients of the classic economic growth seen in the developed world a century ago - Asia remains significantly under-allocated in the portfolios of global investors, many of who still feel uncomfortable at the manager and markets level when it comes to Asia.

As that changes - helped by the entry of large global players such as GLG, Soros, Moore and Fortress into the region, with plans to launch Asia-dedicated strategies - the Asian hedge fund industry will continue to grow steadily, albeit restricting entry only to high-quality, long-term institutional managers.

The 10th AsiaHedge Awards were a testament to that and we bring you full coverage in this issue of the glittering industry night last month and the winners' investment strategies.

This has also been a year of major geo-political changes around the globe, and a candid Q&A with eminent thought-leader and Yale professor Ted Malloch explores the merits of doing more virtuous business in a new world order.

Finally, this edition looks ahead to some of the key new launches such as Open Door, Rega and a special sits Vietnam real estate fund from Saigon Asset Management that we will see in 2012.

So here is hoping for a thawing of the macro scene - and rejuvenated industry performance and capital inflows - in 2012, and we would like to take this early opportunity to wish all our readers and friends a very Merry Christmas in advance from all the team at AsiaHedge.