What Whitney had to tell us about hedge funds

Mon Feb 20, 2012

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Even as closures accelerate, cult managers leave behind deep influences for the stars of tomorrow

By Aradhna Dayal

nullFor those of us who grew up listening to Whitney Houston’s soaring vocals and spine-tingling renditions of her 1990s classic 'I Will Always Love You’, her untimely demise this month was a great shock.

For the fallen singer’s tragic story has every element of a Hollywood classic: immense talent, a euphoric rise to stardom, grappling with success, and finally a losing battle with the dark side of fame and stardom.

The story of many an Asian hedge fund is not very dissimilar. For those of us that have seen the industry’s evolution since the 1990s, the rollercoaster ride that Asian managers have gone through seems all too familiar. Emergence of early hedge fund talent – mostly in the chilly chimes of London or the US (and sporadically in Tokyo or Hong Kong) in 1990s was followed by a period of struggle and success as the Asian managers tried establishing their identity on the global hedge fund scene (in the early 2000s).

Then came the boom phase (between 2005 and 2007) when assets in Asian hedge funds soared on the back of surging global liquidity and a near-blind faith in any story Asian, much like the steroids and drugs that seem to become pervasive in the lives of talented but over-stressed celebrities. And when the bubble burst in 2008-2009, there came a slow and painful rehabilitation process, marred by painful withdrawal symptoms.

The good news is that unlike Houston, many of these talented Asian hedge fund managers have been able to rebuild their businesses through a rethink on their investment strategies and investor bases, and came out of the rehab stronger and more institutionalised than ever.

But the bad news is that a large number of them have not been able to survive the ordeal; latest AsiaHedge data show that post the financial crisis, the closure rate in Asian hedge funds continues to exceed the launch rate. At least 67 Asian hedge funds closed down in 2011 as compared to the 58 new launches seen last year.

And the recent shutdown trend seems to be accelerating. AsiaHedge recorded at least six more closures in January 2012 alone, with many more in the wind-down process, including high-profile newer funds such as Chris Hsu’s Kilometre Capital, and from longstanding firms such as Boyer Allan, Corevest, Tribridge and Thaddeus.

In many ways, Houston’s lyrics in her cult song, bidding goodbye and a realisation that she is not what is needed at this point, seem strangely prophetic.

Looking at it pragmatically, however, many of these legendary hedge fund managers (much like Houston) have left behind not just rich legacies, but also invaluable lessons. Foremost among these, is that hubris – that tragic flaw of overbearing pride that often sneaks into human psyche – is best avoided. In today’s rapidly changing and increasingly fragmented world, the managers who succeed tend to be inclusive of people and divergent views around them, and nimble enough to incorporate that in their investment strategies.

The trend also shows a marked change in investor attitudes: investors today are a lot less forgiving, and more process rather than relationships-driven when allocating to Asia, which means that even longstanding funds face the risk of closure if the performance is lukewarm over anything more than a quarter.

Most importantly, these star managers of yesteryear have left deep inspirations for the new start-ups of today: attributes such as simple, fundamental-driven, long-term investing and a value approach – which is very much in vogue again, albeit in conjunction with an overlay of the more modern-day concepts of quant and macro.

A testament to that is the AsiaHedge’s New Fund Survey, which features in the February issue of AsiaHedge. It shows that despite dwindling numbers, new funds raised almost $4.5 billion – the highest figure since the global financial crisis — and a solid reason to bring cheer in an otherwise uncertain environment.

In this issue of AsiaHedge, we also turn the spotlight on event-driven, macro and multi-strategy funds — strategies that have emerged as the most sought after in Asia.

Finally, the AsiaHedge Forum, which brings together the best minds amongst Asian hedge funds, investors, policymakers and thought leaders, will be held very soon (on 29 February and 1 March, 2012) in Hong Kong. It is as much a tribute to the founding fathers as it is an applause for the Gen Next of Asian hedge funds – and to the former we can only say that 'We Will Always Love You’.

ISSN: 2151-1845 / CDC10004H

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