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Fortress is newest global hedge fund to head for Asia

Wednesday, May 05, 2010
Opalesque Industry Update – Asia is indeed attracting a lot of attention from investors, and hedge funds are said to be making a beeline into the region. The latest global hedge fund to join in is Fortress Investment Group, a New York-headquartered alternative asset manager with $31.8bn in AuM.

Various media reports said that Fortress is planning to re-establish its presence in Asia with the opening of a new office in Singapore – as indeed, records from Singapore’s Accounting and Corporate Regulatory showed that Fortress recently registered a company in the city-state. But the firm is also looking at setting up offices in Hong Kong.

A person familiar with the matter was quoted by the New York Times as saying: “The Singapore office will be for investments. It sounded like they want to start small and slowly build up.”

Fortress closed its office in Hong Kong in June 2009 and downsized its Tokyo operations at the height of the global financial crisis, said Reuters. But the firm said it wants to resume its Asian operations via Singapore.

Hedge funds, financial services firms and bankers have been flocking to Singapore and Hong Kong of late because of the lighter regulations there – and escaping the impending higher levels of regulations and taxes in the West. Although Singapore is currently working on tightening rules for hedge funds a little.

But regulations and taxes are not the only attraction. Peter Douglas, principal at Singapore-based hedge fund consultancy firm GFIA, said that the primary reason hedge funds are attracted to Asia are the many opportunities offered by the region, “and Asia continues to present rich, varied, and constantly developing opportunities.”

However, Hedge Fund Research Inc. (HFR), a Chicago-based hedge fund data provider reported on Tuesday that Asian hedge funds posted a $700m net outflow in Q1-10. This was offset by a performance-based increase of $1.5bn, resulting in total assets invested in Asia-focused hedge funds increasing to just over $77bn; the number of Asian hedge funds declined modestly during the quarter to 1,036.

“Asian hedge funds were confronted with a variety of divergent market influences in the first quarter, and investor flows to Asian hedge funds reflect this,” said Ken Heinz, President of HFR.

The first major hedge funds to make a comeback in Asia were GLG and Soros Fund Management, Reuters said.

Hedge funds in London and other European cities are planning to move to Singapore, Hong Kong or Switzerland because of uncertainties about future regulation, said industry body AIMA to Bloomberg last week.

For example, Peregrine Cust, Prana Capital’s CIO, recently relocated to Singapore from London. Activist hedge fund Algebris Investment Investments LLP said late last month that it planned to open an office in Singapore to take advantage of the region’s growth. Last week, alternative fixed income investment firm Highland Capital Management LP, confirmed a move to put up new offices in South Korea and Australia within six months to solidify it presence in Asia. On Tuesday, consulting firm Mercer announced plans to build a wealth-management services team in Singapore.

Pure Capital, a quantitatively driven investment manager from New Zealand, is having second thoughts about being based in London. “We are seriously questioning our commitment to being in Europe,” said CIO Anthony Limbrick at the recent Opalesque Roundtable in New Zealand. “I am referring here to the plethora of regulatory changes, the tax issues and the political football problem that our industry suffers from in Europe at the moment.” So he is considering moving his head office to Singapore, with New Zealand as a branch office. As “the time may have come to go where the regulation is a bit more practical.”

Fortress’ move into Asia followed a series of expansion decisions. Late last month, the company acquired Logan Circle Partners, which specializes in portfolios for institutional investors. Fortress also announced plans to buy European mortgage assets and platforms from GMAC’s Residential Capital (ResCaP). The acquisition of ResCap’s mortgage platforms in Germany, the Netherlands and the UK, is part of the firm’s thrust to divest non-core assets.

Fortress reported a net loss of $909m in 2009 compared with a $1,221m loss in 2008. It ended last year with $31.8bn in AuM from roughly $41bn a year earlier. It will release its Q1-2010 on May 6, 2010 before the market opens.
- Dumlao, Gravrand

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