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Asia Pacific Intelligence

The Nordic bridge between Asian hedge funds and northern European investors

Tuesday, April 09, 2013

Seppo Leskinen

Seppo Leskinen, left his native Finland 25 years ago and has for the last three years been based in Singapore, originally running SEB Asset management Asia and more recently as the chief executive officer of Karelia Asia Pacific Ltd. He set this firm up in 2012. It is an independent, privately held, 'unconflicted' financial advisory firm working for institutional investors offering advice on various Asian and African asset classes. Leskinen says: "We represent Nordic values."

The firm works in broad terms as an Asian investor advisory firm focusing on investors such as pension funds and life insurance companies from the Nordic and Scandinavian countries and some other European investors. "We try to listen and to find out what the investors are looking for at a high level when it comes to Asia in terms of both long only and hedge funds, but also direct investments transactions" Leskinen says. "I try to get people to invest in Asia by offering them better quality information than what we normally are getting in Europe. Being based in Singapore gives us a very nice edge."

Once Leskinen's firm has identified the demand, they try to build a portfolio to match. "We have built a group of partners who we use depending what the demand is" he explains. "My core partners are Fullerton Fund Management Company in Asian long only strategies which is quite comprehensive and Standard Chartered Bank in various credit and loan assets, private equity, and principal investments. We are working on some infrastructure loan assets that can be structured to a pension fund for this liability matching especially when the corporate bond market has lost it shine." Real asset investment can stretch from mining to a dairy farm in New Zealand.

Leskinen also markets a small number of Asian hedge fund managers. The firm numbers seven sales people in total who are on the ground near the investor base in Denmark, Sweden, Norway, Finland, Austria and Hungary and there are a further two people in the UK covering mainly family offices. "I am personally very actively involved too" Leskinen says. "I only market managers where I have invested myself my own money. This gives me comfort that the '' fact sheet '' numbers are actually real and keeps me very much informed what the underlying manager is doing. I have an aligned interest with investors."

Leskinen believes that Nordic and European investors are coming back from the 2008 crisis. Nordic investors in Asian hedge funds took fright after the financial crisis but they are returning. "Clearly when it comes to Asia it is a bit different because Nordic people can trade in Europe but when it comes to Asia they don't do single securities, they need an external manager whether it's for long only or long/short. It's a major difference."

In addition to its Nordic and European institutional client base, Karelia Asia has relationships with local asset managers who distribute their funds to both institutional and more ' private wealth ' type of investors plus family offices drawn from the Nordic region and also from  the UK and continental Europe, university endowments and a small number of Asian Investors.

Money under management is in the tens of millions of dollars at the moment with this early stage company but Leskinen reports an impressive pipeline, especially in the fund strategy side. "My plan is to manage a few hundred million Euros from the Nordic region alone in coming years but we will see" he says.

Investors looking to Asia Pacific hedge funds are looking for the same as from anywhere else, he says, quality and trustworthy managers. "However the Nordic countries differ quite a lot when it comes to investing in Asia in general and also in hedge funds. Some countries are further up in the curve than others and one needs to know where to target."

Leskinen believes that Asian hedge fund investments are still challenging for investors as many Asian hedge fund names have not been marketed in the Nordic countries and have not been heard of before. "Also the Asian markets are still not that well understood as the quality of information is not always that great and the investors don't trade underlying securities much which makes the Asian markets quite distant to them. This makes the hedge fund managers relationship even more challenging. It is often a question of trust and a question of covenants. That's where we can add value being local and we focus on this very much to create a good relationship with the managers and trying to close the gap. Our own view and opinion on the manager is very often asked by the investors."

Generally, Leskinen finds that Nordic investors continue to prefer European, Luxembourg or Dublin funds, he finds. "The institutional investor doesn't normally invest in very young managers and those managers get invested by family office type of investors. There have been exceptions, especially if the team is strong. There is growing interest in 'new frontier 'strategies and we are looking for a suitable manager at the moment."

He adds: "I also think that generally there is good growing interest in Asian hedge funds generally as the long only strategies have been quite well marketed in that region and the Nordics have very strong experience in hedge fund investing and many are very well resourced to do their own due diligence on the manager once they have agreed to look at them."

Post 2008, investors are, Leskinen believes, better resourced on manager research and are even more professional. "Quite often an investor has his own view of the market going forward. You might be a great manager in their mind but your strategy just doesn't fit to 'my view of the market' and you will not get invested."

Leskinen sees new types of Asian funds coming through that include alternative assets in various forms, such as Asian art and real asset linked strategies; socially responsible funds focusing on lending to less fortunate and very low income societies in the form of micro finance type of funds that lend small amounts of money to certain target groups like single parents in India or Pakistan;  Asian ' direct lending strategies'  and infrastructure related strategies on both direct deals but also funds.

New investor groups or growing investor groups coming through include the private wealth investor community who are getting more sophisticated in their investments. "The ' home bias ' is still there but less and less going forward as people get more informed" Leskinen says. "There is demand for country and sector specific strategies for Asia and the emerging markets. There is also a fundamental discussion going on among the larger institutions and their allocation strategy. Many of them follow MSCI world index and as we all know that doesn't reflect the allocation based on real GDPs and Asian economies are inadequately captured in that. The Asian allocation could easily double if the real GDP based allocation were taken onboard today" he says.

Looking forward, Leskinen believes that there will be more Asian and emerging market allocations across the board in all sectors and strategies, and a growing demand for more sophisticated Asian hedge fund strategies. "Larger European institutional investors will open their local Asian offices in growing numbers and larger Asian mangers will open their offices in Europe to be closer to the investors. Asian investors will increase their allocations from Asian toward western economies."

From the point of view of a market outlook, Asian markets will be strong and, Leskinen believes that as long as China avoids social unrest it will continue to be the engine going forward. "New frontier markets will see growing numbers of managers and thus investments too" he says.

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
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