Opalesque Industry Update – Asian hedge funds may be experiencing rapid growth over the past several months, with some insiders in the region outpacing their Western counterparts, but the positive outlook on Asian hedge funds was not enough to spare the region’s industry from the disastrous month of August.|
According to a report by the Financial Times, even some of the veteran hedge fund managers in Asia have described August as the most difficult month for them, especially for long and short managers.
Richard Johnston of Albourne Partners (Asia), said that August was very tough for their clients. While hedge fund manager Li Ning disclosed that many investors were forced to trim down their positions last month at the height of the market volatility, and others held on to their shares. Ning told The Times, “It looked like there were huge forced unwinds. But nobody can figure out who it is.”
“Most of the hedge funds were forced to dump the longs they love and buy back the shorts they hate,” says the chief operating officer of one major equity fund based in Hong Kong. Industry analysts say that the results of August highlights the fact that while the Asian hedge funds space has shown significant improvement over the last couple of years, the region still has a lot of catching up with its Western peers.
Although last month’s showing clearly indicates that the Asian hedge fund industry is also vulnerable to market volatility, there are still more room for optimism. Singapore-based hedge fund data provider Eurekahedge Pte., reported last week that the Asian hedge funds industry could grow to $180bn over the next 12 to 18 months as investors look to Asia amidst economic slumps in the U.S. and Europe.
From $14bn at the start of 2000, the Asian hedge fund industry grew to $134bn as at the end of June this year. More importantly, the number of funds has grown eight times to 1,235 since 2000, the report said, citing increased popularity of hedge funds and the easing of regulatory restrictions in the region.
In Greater China alone, there are an estimated 300 hedge funds located there, representing a rise of nearly 32.9% in the last quarter. Geographically, the number of hedge funds in China and Singapore also reported a significant increase in the second quarter of this year (See Opalesque Exclusive: here)
Hedge Fund Research’s Josh Gu said, "In the second quarter of 2008, there were 189 funds located in China (Greater China, so including Hong Kong). And in the second quarter of 2011, the number increased to 281. After the financial crisis, China became the third country with the largest amount of hedge fund firms located there, following the U.S. and the U.K. So there are more hedge funds in Greater China than in Europe excluding U.K. for example." Another source of optimism for the Asian hedge fund industry is a separate report also published last month which showed that American companies are competing to manage Hong Kong based hedge funds.
According to the report, U.S. companies attempting to get a slice of funds movements have set their sights in Hong Kong hedge funds as the U.S. economy and the European sovereign debt issues continue to generate concerns amongst investors and move their money into Asia.
Many hedge funds which left Asia at the height of the 2008 financial crisis, are back in the region to set up operations. But the money trail to Hong Kong has attracted not only hedge fund managers but big Wall Street banks and private equity firms, including Citigroup, Blackstone Group, Carlyle Group and TPG Capital which have been hiring additional personnel in Hong Kong and Asia to generate capital from institutional investors such as pension funds and sovereign wealth funds.