The combined distribution strength of European seeding specialist NewAlpha Asset Management, and Singapore-based alternative investment firm Woori Absolute Partners lies behind a new hedge fund seeding vehicle seeding operation, Woori Absolute Partners, headed up by chief investment officer Edward Moon.
Moon, an ex-investment banker from the US first came to work in Asia in 1994 and has, since then, as he puts it in an interview with Asia Pacific Intelligence, been in and out of the region for the best part of the last 20 years, including stints setting up a Korean office for Credit Suisse and managing the Citigroup equity capital markets business in Korea.
In terms of assets under management, the Woori Financial Group is the largest financial concern in South Korea and in 2008 it moved to establish an alternative investment platform in Singapore. Woori Absolute Partners (WAP) provides hedge fund advisory services, manages a fund of hedge funds, and has already seeded a credit hedge fund, with NewAlpha, Blue Rice Investment Management, managed by Guan Ong, interviewed on Opalesque TV and in the October issue of Asia Pacific Intelligence, and formerly the first chief investment officer of the Korean Investment Corporation.
Moon says: "NewAlpha came on board as a co-seed investor and we were happy to have them join us given their strong reputation as a seeder and their ability to help raise the fund's profile with key European investors."
NewAlpha chief executive officer Antoine Rolland had expressed an interest in expanding investments in Asia, but given the time difference and geographical distance, was happy to have an Asia based partner. "There was a meeting of minds between myself and Antoine" Moon says. "It's great to join forces and we feel that we have complementary skills with both parties bringing different but equal strengths to the table."
The initial committed capital for the seeding fund is $50m and is aimed at emerging hedge fund managers across Asia Pacific, to include Australia, Japan and India. WAP and NewAlpha have now vetted over 140 funds, from those in a pre-launch phase to those with a two to three year track record. That list, Phase Zero, came down to 25 and a joint selection committee further narrowed it down to just five candidates. WAP and NewAlpha are targeting to make two investments of $25m each by the first quarter of 2013.
"It's a very challenging fund raising environment and we are keenly aware that our investors demand and expect an uncompromising and thorough investment, risk and operational due diligence process." Moon says. The due diligence process includes but is not limited to standard reference and background checks on the firm's principals, analysing and scrutinizing historical performance figures, obtaining a comprehensive understanding of the strategy. The next step would be to perform on site due diligence to assess operations, legal, risk and portfolio management. This entire process helps to filter out some of the funds that are what Moon calls "non starters or not operating at a high enough level which institutional investors require."
"You have to tick all the boxes you would as a fund of fund investor - they need to pass the test in terms of performance strategy and pedigree but additionally it's very important for managers to understand what their appeal is to institutional investors, how they will market themselves, what the capacity of their fund's strategy is and , perhaps most importantly, how to build a successful and sustainable business."
Asset raising in Asia is critical, Moon believes, with its bifurcated hedge fund market where the largest 20% of hedge funds manage 80% of the assets, and 80% manage under $100m and 60% manage under $50m. "The game in Asia is clearly an assets under management game" he says.
Moon has found that typically Asian hedge funds underestimate how challenging it can be to raise assets. "Hedge fund seeding helps emerging managers to overtake certain thresholds, accelerate their development and raise their overall profile, and this in turn provides investors with an attractive investment opportunity by monetizing the risk premium generally attached to smaller/younger managers."
The new seeding vehicle is domiciled in Singapore and has recently received official approval to operate under the enhanced tax exempt status. In terms of the talent that they are seeing in the region, Moon reports that they are pleased by the level of managers coming into the market now. "You are seeing second and third generation Asian managers who have been managing Asian portfolios on large global platforms, many of which have scaled back or shut down but left a residual presence of high quality research teams, traders and PMs who have been trained up to a high level. There is a pool of high quality talent that is emerging."
The talent pool has also benefited from the investment banks who are divesting themselves of risk and closing down proprietary trading desks. "It's not just in equities but also in fixed income, rates and foreign exchange so you are seeing interesting macro, credit and more nuanced market neutral strategies emerging" Moon says. "The breadth and depth make it very interesting for potential investors."
The Woori NewAlpha approach is to take a revenue share in return for seed assets. It represents an innovative way to monetize the risk premium attached to emerging managers. It is also the best approach to rebalance in favor of investors the business relationship between investors and managers.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.