Industry Updates

Mid-sized hedge funds in Asia with $250m in assets appeal to pension and sovereign wealth funds

Wednesday, June 29, 2011

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Opalesque Industry Update – Mid-sized hedge funds in Asia with an average of $250m to $700m in assets under management, a minimum of three-year track record, and institutional-quality infrastructures, are the top choice of pensions and sovereign wealth funds for allocations, according to the latest survey published by Citi Prime Finance.

Dagmay Baeuerle, Head of the business advisory group at Prime Finance Asia-Pacific was quoted by AsianInvestor as saying: “Asian hedge funds have reported that as they got close to the $250 million-plus mark, they saw increased due diligence requests from sovereign wealth funds and pension funds with investments coming within nine to 12 months after that,” says Dagmar Baeuerle, head of the business advisory group at Citi. Citi Prime surveyed 58 investors across the globe with an aggregate assets under management totaling $1.65tln and hedge fund managers with an estimated AuM of $186bn.

Interestingly, the study found that as of the first quarter of this year, 57% or $1.1tln of the global hedge fund assets were allocations from institutional investors, after eclipsing high-net-worth individuals and family offices as the biggest allocators to the alternative asset class two years ago. Meanwhile, pension funds account for the biggest slice of institutional allocations to hedge funds at 53.5% of the total investors, while sovereign funds a distant second at 19.8%.

According to the Citi Prime study, the sweet spot or threshold for Asian hedge funds is $250m as investors look at hedge funds with that size as being the nimblest. Baeuerle explained that most investors look at mid-sized hedge funds as adaptable enough to deploy capital “in the most flexible manner and are most willing to negotiate fees and other terms.”

But what makes these small and mid-sized hedge funds more appealing compared to their larger counterparts, is that their managers are more open to forging a closer working relationship with investors, as well as being more accessible and willing to discuss the fund’s performance.

However, more important than the fund size, is the track record. In terms of scale, funds in Asia are smaller compared to their Western counterparts, Baeuerle noted.

Baeuerle added: “We believe that, in the next few years, there will be an increased shift into hedge fund investing by those pension funds and sovereign wealth funds in Asia-Pacific that, to date, do not invest in hedge funds.”

The same study noted a similar trend emerging in the global hedge fund space when it found that mid-sized hedge funds generated the biggest net asset growth last year and demolishing the assumptions that the biggest funds are attracting more money.

In global terms, the sweet spot for managers is between $1bn and $5bn as funds these size experienced the largest percentage in allocation increase during 2010 at 37% of the total money raised by the industry. Hedge funds that manage assets under that range generated an estimated $85bn in net inflows in 2010, compared to an increase of $30bn among managers with an AUM of between $5bn and $10bn, and a net increase of $72bn for funds with more than $10bn under management.
Komfie Manalo

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