Asian managers line up to catch the platform train

Mon Nov 19, 2012

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The massive churn in the Asian hedge fund industry is throwing up not just challenges but also major opportunities

By Aradhna Dayal

nullIn Asia, a new trend is quietly but firmly taking shape: a handful of the mega Asian hedge fund shops, particularly those that have crossed $500 million in assets under management and have built institutional infrastructure, are contemplating a move toward becoming multi-talent/multi-strategy shops or quasi-platforms.

These mega funds, many of which have hard- or soft-closed their flagships funds over the past year, view this as a strategic move: the platform model could well be the next critical step in their growth trajectory and catapult them into the same leagues as many of their highly successful global counterparts that run multibillion dollars in a range of strategies or managers.

Virtually all the platform aspirants I speak to prefer to keep a low profile on their plans as of now, so as not to rattle investors or peers in the industry. However, they confess that the massive churn being seen in the Asian hedge fund industry currently is throwing up not just challenges but also major opportunities, and adopting a quasi-platform or multi-talent model positions them for both.

Their rationale? Well, if you are one of the very few $500 million-plus hedge funds in Asia that have cleared the lengthy due diligence process of institutional investors, and if you have the resources to support cutting-edge infrastructure, there is no reason why you should not add new managers or strategies, in particular if your investors trust you and are keen to allocate more to you.

Bringing on additional managers has multiple benefits: it can be done at a marginally incremental cost, and presents a textbook case for funds to consolidate their AUMs and augment business at a time when business sustainability has emerged as a key concern.

Second, the extensive consolidation being seen in the Asian hedge fund industry and the closure of bank prop desks has unleashed a plethora of talent in the market, and for many of the established Asian shops there is no better way to bring that talent on board than via a well-oiled platform.

However, the path to a successful platform model can of course be treacherous. A key question these managers-turned-platforms will have to ask themselves is whether they have the ability and managerial bandwidth to manage multiple PMs and transition to a new business model. Then there is the question of convincing the investors: it is a well-known fact that the fastest way to lose investors today is by diluting your investment focus or deviating from the originally stated investment strategy.

What then can be the most optimal solution for Asian managers wanting to expand their remit? From my recent conversations with some of these managers, it appears that this is best done when demand-driven, taking the shape of a joint venture, or specially crafted deals between the manager in question and an institutional investor where there has been a longstanding relationship.

This way, if the investor is ready to allocate to a particular strategy in Asia but wants to deal with a trusted entity, the manager uses its platform to bring on board a new PM with specialised skills in that strategy. After a successful incubation, that strategy can be spun off as a separate fund on the platform, or run under its master fund. While this is quite a popular seeding method globally, it is yet to become widespread in the still rather boutique-based and fragmented Asian hedge fund industry.

While it is premature to name who these multi-talent/quasi-platform aspirants will be, what we can say is that many of them were present at the glittering AsiaHedge Awards 2012 dinner on 25 October, which was held at the Island Shangri-La in Hong Kong.

The awards attracted some of the best brains in the Asian hedge fund investing and allocating space, raising a toast to the best-performing Asia-focused funds (on a risk-adjusted basis). A full report on the AsiaHedge Awards winners is included in this issue, starting on page 12.

We also bring you a Q&A with Zhen Liu of E Fund in China, one of the pioneers of not just hedge funds but also quantitative investing in the country. Liu gives an insider’s view of the rapidly evolving quant funds and CTA industry in China, making for a compelling read.

Continuing our deeper focus on performance, we bring you a round-up of some of the top performers in Asian space, including managers such as Ward Ferry, Serica, Credence and Albizia. We also turn the spotlight on high-quality launches with updates on the likes of Goldman-spinoff Alcova.

I hope you enjoy reading the November/December issue of AsiaHedge.

ISSN: 2151-1845 / CDC10004H

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