By Aradhna Dayal
The summer doldrums seem to have extended to the Asian hedge fund industry, which inadvertently seems to be in the throes of an ongoing inertia. While August brought in some cheer with improved performances, it is clearly not enough yet to turn the fortunes for a large portion of Asian managers: those who have been hit by the sideways-swaying markets in Asia over the past few months, historically low volatility (across the global markets) and, most importantly, the absence of outlying returns, which lured international investors into Asia the first time round.
From conversations with the international investors, it is fairly evident that there seems to be no urgency to deploy capital in region at present, and that all investments are now being made on a purely bottom-up, manager-specific basis. This means that unlike 2010-2011, global investors are not seeing a compelling reason to invest into Asia unless they see a particularly interesting manager with solid and steady performance, in a particularly interesting space such as commodities or multi-strategy. Good examples of these are David Erro’s Turiya Capital, Hong Kong-based Segantii, Alp Ercil’s ARCM, all of which have gained considerable investor capital this year. Then there are players such as Hillhouse (now at a staggering $6.3 billion in AUM) and Claire Barnes’ Apollo Asia (which remains small and closed with an impressive annualised return of 27% since inception in 1999) that are attracting money for their fundamentals-oriented, long-biased investment skills.
So what would determine the winning strategy for Asian hedge funds in this scenario? To start with, moving into multi-strategy, commodities, macro or CTA-type strategies could help. A look at some of the best-performing managers in the region (as shown in the AsiaHedge league tables) shows that most of the outliers are capturing opportunities across asset classes and moving into or adding more niche strategies. The days of simple equity long/short in Asia are likely over.
It is also critical to manage your AUM size. In my conversations with many of the post-2009 start-ups that went on to raise over $1 billion and became poster children for the Asian hedge fund industry, managers acknowledge that it would probably have been a better idea to keep their assets contained at a level where performance would have had stayed robust; indeed, several managers confided privately that they are now sacrificing marketing trips in favour of a refocus on their portfolios.
Several of these mega-funds are seeing heavy losses this year, whether it be because the space they operate in (such as event-driven) has had a tough time, or simply because the asset size is too large to meaningfully deploy in the still-nascent Asian markets. Of course, there are outliers here as well, with players such as Dragon Billion, Janchor and Turiya still bringing in strong performance.
Given this background, our renewed focus on performance stories could not have had come at a better time. This month we turn the spotlight on funds such as Asean Small Cap Fund and ARA Asian, which have notched up over 30% returns this year.
This month, we also bring you a key piece of research, the AsiaHedge Asset Survey for H1 2012. Contrary to expectations, industry AUM edged up slightly to $144 billion in the first half of 2012 – a refreshingly positive sign. Inflows into larger managers, both new and existing, offset the dent made by record shutdowns and lukewarm performance.
Amid this scenario, there are certainly managers that have revved up returns over the past year either though disciplined trading or astute bottom-up name selection or a combination of the two. The AsiaHedge Awards 2012, to be held at Island Shangri-La in Hong Kong on 25 October, will celebrate exactly these managers.
In this issue of AsiaHedge, we bring you final preparations for these awards and look forward to seeing you at the awards ceremony next month.