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Asian investors still ‘not embracing’ hedge funds

Monday, August 22, 2011
Opalesque Industry Update - Reports are conflicting on Asia’s role in the development of the hedge fund industry as a whole. While there were studies, particularly from Singapore-based research firm GFIA claiming that Asia is now emerging as a hedge fund center (See Opalesque Exclusive: here), other studies are pointing out that Asia is actually lagging compared to its Western counterpart.

A report by The Financial Times said that while European investors are gradually allocating again to hedge funds, Asian investors have not caught up with the trend.

The report interviewed Robert Marquardt, chairman of the $1.5bn Signet hedge fund, who said that Asian investors lack “a strong understanding of the hedge fund industry” which is an Anglo-Saxon invention. Marquardt added that Asia is still not familiar with the global perspective offered by hedge funds.

“Hedge funds appear to be off their radar screens because they have found it easy to generate returns in the white-hot investment grade and high-yield bond markets,” he added.

Anurag Mahesh, Singapore-based head of Asia-Pacific investments at Deutsche Bank’s Private Wealth Management division pointed out many Asian businessmen are skeptical about the opportunities offered by hedge funds, primarily because of the difficulties in shorting Chinese stock and the limited liquidity in exchange traded funds.

With the exception of Hong Kong and Singapore, Mahesh said that Asia is trailing Western economies in accepting hedge funds. The situation is not helped during the financial crisis in 2008 when many investors from Asia were hit by lock up or limited redemptions from hedge funds..

Two of the major advantages of Asian cities are low rental and operational costs compared to London and New York. And despite rental costs in key Asian cities increasing in recent years, they are still relatively low compared to their Western counterparts.

Asia also enjoys more liberal regimes in terms of regulations unlike London and the U.S. which are adding more pressures to hedge fund managers and the industry.

Another report added that investors have picked up their optimism for Asian-focused hedge funds. Early this month, industry data provider Hedge Fund Research revealed that Asia-focused hedge funds attracted $2.6bn in 2Q as assets reach $90bn. It added that Asian hedge funds resisted inflationary pressures, and volatile commodity and equity markets (See Opalesque Exclusive: here).

According to HFR, Asian hedge fund industry enjoyed positive perception from investors despite worries about the U.S. and European sovereign debt as attested by the new money poured into the region’s hedge funds industry.

Some hedge funds even find Asia as a safe haven despite the latest round of financial routs across the globe.
Precy Dumlao

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