Wed, Sep 24, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Asia Pacific Intelligence

Veteran of the Asian hedge fund industry sees little to celebrate in stagnant year

Monday, October 08, 2012

Asian hedge fund industry veteran Peter Douglas, founder and principal of GFIA, has been covering Asian hedge funds since 1998. Over the years since then the 18 editions of his semi-annual Asian hedge fund note have reported on the industry as it has seen it grow, achieve critical mass and then contract back again to what he now deems a period where an overall stagnant picture masks structural change.

Back in 1998, Douglas says, the industry was small and participants mostly knew each other. It was dominated by ‘maverick' specialists and it wouldn't achieve critical mass, both in terms of size and number of managers until the early years of the next century. "In those early stages, the industry was still characterized by investment specialists rather than financial entrepreneurs. Capacity was relatively easy to access even in top performing managers" Douglas writes.

It was in 2003/4 that global allocators began to research Asian hedge funds, research that was quickly followed by allocations as Asian hedge funds appeared to perform differently from those based in the rest of the world. However, concentration was still focussed on high profile managers.

In 2005, GFIA counted 136 hedge funds with more than US$200m under management and by the end of 2007, Asiahedge reported 35 hedge funds with over US$1bn of hedged assets run from Asia.

The financial crisis hit the Asian hedge fund industry hard with 2008 producing what Douglas calls ‘a maelstrom' of redemptions. "The subprime crisis in the US developed into a global liquidity squeeze, leading to widespread redemptions. Allocations, regardless of whether tactical in nature or not, were retracted quicker than they were made. Performance was no protection against redemption. Larger funds were hit harder than most, and many firms' AUM were more than halved. Funds running more liquid strategies (of which Asia had a larger proportion) were easy targets for "ATM-effect" redemptions, and experienced greater outflows than (generally much larger) illiquid funds. The number of fund closures spiked and several global firms exited the region" Douglas writes.

The following years saw some resumption of inflows as the hedge fund industry in Asia stabilised but attrition rates, the number of funds closing as a percentage of the total stuck at 11%. Post financial crisis and post Madoff, Douglas reports that there was increasing pressure on Asian hedge funds to institutionalize their operational infrastructure and, at least nominally, improve transparency.

2010's changes saw proprietary trading desks spun off from investment banks as they attempted to de-risk, new management firms started up with new funds and opened offices in Hong Kong/Singapore, cementing Asia's position as one of the global financial hubs for the hedge fund industry.

However, 2011 and 2012 continued to see new capital largely flowing into larger funds, despite what Douglas believes is the empirically weaker performance and generally lesser transparency. "GFIA estimates that as at end-2011, there were approximately 30 managers (10 indigenous firms and 20 global managers) with over US$1bn of hedged Asian assets, compared with 55 at end-June 2011. GFIA's research suggests that the fall was a result of overall net outflows of capital from the region during 2H 2011, as well as a continuing trend of decreasing transparency from larger managers.

We counted 12 purely Asian focused managers with over a billion AUM as of June 2012; they however represent less than the total sum of hedged assets in Asia, since we discounted funds with a broad global or emerging markets mandate. However, as of June 2012, the total AUM of the industry was an estimated US$138bn, compared with US$147bn at end 2011. The industry shrank for the first time ever in 2011 and is continuing to downsize as we speak".

In an interview with Asia Pacific Intelligence, Douglas said that one of the few bright spots are the long-only stockpickers, who although are of course not hedge funds, often appeal to a similar universe of alpha-seeking allocators.

"There's clearly institutional interest in a small number of large managers in Asia" Douglas said. "The hedge fund proposition makes little sense these days, unless you are a backwards looking institution using 10-year data to make your decisions, and need to invest in organisations and funds that, frankly, are too big to be safe. The skill sits in small principal owned organisations that are doing everything right, but are hanging onto their assets by the skin of their teeth."

Opalesque reported on the GFIA analysis note. You can read those pieces here, here, and here

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
Asia Pacific Intelligence
Asia Pacific Intelligence
Asia Pacific Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. SEC charges 19 investment firms and one trader for breach of Rule 105[more]

    Benedicte Gravrand, Opalesque Geneva: The Securities and Exchange Commission (SEC) started a push to enhance the enforcement of Rule 105 of Regulation M last year to uncover hedge funds and private equity firms that have illegally participated in an offering of a stock after short selling it duri

  2. Outlook - Julian Robertson: There are two bubbles that can bite us[more]

    From Businessinsider.com: Legendary hedge fund manager Julian Robertson gave a warning about two bubbles that could "bite us" at Bloomberg Market's Most Influential Summit. "I agree with the fact that the economy is definitely getting better. I think the cause of that is two bubbles that will

  3. Fund managers, bullish on Europe, anticipate monetary policy separation of Fed and ECB[more]

    Komfie Manalo, Opalesque Asia: At least 202 fund managers with $556bn of assets under management said that while the European Central Bank (ECB) has eased its monetary policy that sent sentiments towards Europe to pick up, the Fed is expected to hike its rate in the spring of 2015. Investor

  4. Institutions - North Carolina workers call on state pension to dump up to $6bn in hedge funds, UK pension fund criticizes hedge fund fees[more]

    North Carolina workers call on state pension to dump up to $6bn in hedge funds From Forbes.com: The State Employees Association of North Carolina this afternoon called on state Treasurer Janet Cowell to withdraw all investments in hedge funds, which appear to amount to approximately $6 b

  5. News Briefs - Limited partners of investment managers may be subject to self-employment taxes, Just one week left until NYC's Rocktoberfest[more]

    Limited partners of investment managers may be subject to self-employment taxes On September 5, 2014, the Internal Revenue Service (“IRS”) issued Chief Counsel Advice 201436049, concluding that members of an investment manager were subject to self-employment taxes with respect to their e