Putting Asia on the global map

Thu Mar 22, 2012

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After several false dawns in the past, this indeed looks like a huge milestone for the Asian hedge fund industry


By Aradhna Dayal

nullMarch is usually a good month for the Asian hedge fund community. The advent of Spring, along with the Rugby Sevens season in Hong Kong, brings about an effervescence and cheer to the landscape, and local hedge fund managers look forward to drowning the stress of Q1 investor meetings and fickle markets over a few pints of beer.

This year, the industry has a lot more to cheer. After a rollercoaster ride of more than a year made it very difficult to deliver positive returns, the markets seem to be more benevolent again, and performances back in the black too. Assets for the new generation of Asian-born, billion dollar boys that performed creditably last year (read names like Dymon Asia, Ortus Capital, Janchor Capital and Turiya Capital) seem to be growing steadily, with several crossing the critical $2-3 billion dollar mark. After several false dawns in the past, this indeed looks like a huge milestone for the Asian hedge fund industry, whereby there is now a deep enough pool of large-scale, multi-strategy managers that are capable of attracting stable, long-term institutional capital and can compete more effectively with their global counterparts.

Coming at a moment such as this, the AsiaHedge Forum 2012 aptly reflected the maturing of the Asian hedge fund industry. An interesting comment, from one of the longstanding managers speaking on the Business Sustainability panel, summed up the mood. His biggest worry these days, it seems (unlike, say, five to six years back) is how to keep his fund from growing too big, and how to keep the investment process sharp and staff motivated at this asset level. Indeed, there is a new awakening among Asian managers these days - and a new emphasis on real delivery of quality performance and service. It is these managers, who in my opinion, will put Asia on the global map, in the years to come.

Another topic that got me thinking post the Forum was that of arbitrage - both regulatory and geographical. In my conversations with global regulators and investors over the past year, there have been constant questions around whether Asia is getting, or will get, an undue advantage from tougher rules elsewhere. This was a point hotly contested by Asian managers and regulators at the Forum, with Ashley Alder, CEO of the Hong Kong Securities and Futures Commission, refuting the notion that the region was playing a game of regulatory arbitrage with more relaxed rules for hedge funds than in the US and Europe. The managers had a similar viewpoint: investors are no longer playing the EM-DM game; rather, Asia is an increasingly intrinsic part of their global allocation strategies, and a piece that will continue to grow over the next decade.

An interesting observation, on that note, is that unlike in 2009-2010 when it was mostly global managers that were gathering intelligence on Asia and readying their entry strategies, the past year has been dominated by global investors adapting their due diligence processes to Asian managers and sharpening their on-the-ground knowledge and relationships in the region.

Apart from that, the rising diversity of strategies in the industry was seen in full force at the AsiaHedge Forum. From managers that advocated currencies as an asset class to path-breaking managers that are pioneering collective investment models, from fundamental long-term investors to event-driven and trading-oriented managers, and from macro funds to true multi-strategy funds, the Forum showcased a wide range of highly evolved, diverse Asian hedge funds. Also out in full force were global and regional allocators, with presentations that ranged from the failure of active asset management in Asia to new seeding/accelerating initiatives for Asian managers.

Having said that, a significant number of fund closures and negative performances last year have dented assets for the Asian hedge fund industry. The latest AsiaHedge asset survey shows an 8% drop in industry assets in 2011, ending the year at $140.62 billion.

And yet, Asia is a region known for its resilience, rising from the ashes like a Phoenix again and again. Given a stabilising global macro climate, the likelihood of a soft landing in China and new governments across the region this year, it would not be surprising if the industry begins a recovery once again this year - and in the process puts Asian hedge funds firmly on the world map once again.

ISSN: 2151-1845 / CDC10004H