The Opalesque AMB team reported on the GFIA hedge funds note for April, finding that there had been a significant spike in the number of Asian hedge funds with less than $10m in assets under management due to investor withdrawals and fund poor performance.
The firm also found that there were only six new hedge funds launched in 2012 with less than $10m in AuM. 29 funds were launched during the year.
"Of the 769 funds that report AuM regularly, 443 of them have less than $50m under management, the minimum level which we estimate management fees can support the operational expenses of a typical boutique in Asia - although this figure has likely increased over the past few years," the report says. "Currently, there are 212 funds with at least $100m under management, and a minimum 12 months operating history; this is the absolute minimum 'cut' which, in our experience, the majority of allocators are comfortable."
2012 saw a decrease in number of funds that were larger than $10m, except for the billion dollar fund category which saw an increase of one fund.
A second report on the GFIA note and other findings, found that Asian hedge funds have seen continued outflows over the year. "Total AUM for Asian Pacific funds decreased from $147bn in Dec 2011 to $135.5bn in Dec 2012, highlighting the difficulties managers are having in raising capital, unsupported by strong returns” the report said.
GFIA believes that as the hedge fund world consolidates, smaller funds will continue to face difficulties, as private capital appears to GFIA largely to have exited the hedge fund industry to seek better performance outside the world of financial investment, and large institutional investors limit their allocations to funds with longer track record and significant AUM base. “This shift in investor base will definitely drive a transformation in the Asian hedge fund industry as managers reposition their offerings and their firms, to be attractive for the dwindling number (albeit larger-ticket) allocations," GFIA said in its report.
This trend appeared to be supported by news that Hong Kong's Richland Capital is to shut down its hedge fund business, despite out-performing peers. Reuters reported that Richland was one of Asia's best-known hedge funds with some $100m under management, divided between two funds and that it advised on an additional $150m for wealthy clients. The hedge fund had been founded in 2006 by former HSBC Holdings Plc trader Alex Au with Eva Lo, who earlier worked at Credit Suisse Group AG, and had made money for its main Richland Asia Absolute Return Fund each year since launch, including a 5.3% gain in the challenging markets of 2008.
Asiahedge reported that 2012 had been a year of contrasts for the sector. Assets in the Asian hedge fund industry stand at $139bn, the publication found.
India and its fledgling hedge fund market received a great deal of attention this month, with a piece in Reuters widely re-reported around the world, detailing the activities of Indian hedge fund manager Kalpesh Kinariwala, who, the piece says, is so sure of his equity strategies in a country that has stumped foreign rivals that he sends a daily e-mail tracker of his performance - including to competitors.
The Reuters piece finds that Kinariwala's Capveda Capital (India) Advisory fund, which he runs from a modest office in a decrepit industrial estate in Mumbai, has returned 11.86% so far this year, outperforming average negative returns of 2% from India-focused foreign hedge funds.
Asia Pacific Intelligence reported on the Indian hedge fund sector in February an interview with academic turned fund manager, Dr Vinay Nair, founder and chief executive officer of Ada Investments who believes that in terms of hedge funds, India is currently similar to the US in the 1980s. "It's a very young market, ripe with inefficiencies and mispricing making it very appealing to alternative or hedge fund strategies" he said at the time.
Bloomberg's Business Week interviewed with Paamco's David Walter in Singapore, reporting that the $8.6bn U.S. fund-of-hedge-funds, is seeking to raise money from pensions and sovereign wealth funds in Asia to diversify its investor base.
Walter said that the company is looking at Asian managers employing relative value strategies and those investing in high yield stocks.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.