The Financial Standard reported on AMP Capital's Institutional Investor report, finding that investment in alternative assets are on the rise globally. Institutional investors around the globe are allocating more to alternative assets such as listed real estate, private equity and infrastructure, according to the AMP Capital Institutional Investor Report. AMP surveyed institutional investors in Asia, the Americas and Europe, collectively managing US$1.9 trillion. The survey revealed a net increase in alternative investment, with the majority of respondents expecting this trend to continue.
The Australian reported BlackRock managing director, Michael Trudel claiming that few hedge funds are long the Aussie dollar. See Asia Pacific Intelligence's interview with Andy Seaman from Stratton Capital on the Aussie dollar in this issue.
Australia's consultancy for business and marketing intelligence on the financial and investment markets Basis Point has launched a new website and newsletter focused on the new Significant Investor Visa which has been launched in Australia.
Basis Point's founder and managing director, David Chin, outlined the new visa in Opalesque's Asia Pacific Intelligence in the February issue.
The South China Morning Post reported that a new tax exemption is expected to draw hedge funds to Hong Kong. The piece found that Hong Kong's AIMA chairman Philip Tye says Hong Kong is an ideal place for funds to sell their products and that he expected more funds to domicile their products in Hong Kong because Financial Secretary John Tsang Chun-wah in February proposed to expand tax exemptions for private equity funds and to allow fund products to be structured more flexibly. The piece quotes Tye saying: "The government reform plans, as well as the internationalisation of the yuan, are going to make Hong Kong more attractive to many hedge funds. Hong Kong has always been an ideal distribution centre for fund managers to sell their fund products to Asian investors. The proposed reform plans would now make Hong Kong more attractive for fund companies to domicile their funds here. This will create job opportunities and benefit the hedge fund industry as a whole."
The SCMP said that of the roughly 1,700 funds in Hong Kong, about 300 are domiciled there, with the majority domiciled in Luxemburg and Dublin, partly due to structural and tax issues. A law change in 2006 granted a tax exemption to offshore funds investing in stocks and futures. The new proposal would expand the tax exemption to offshore private equity funds that invest directly in companies. Tsang's other proposal was to allow funds domiciled in Hong Kong to be established as a company. They are currently required to be trusts. John Levack, vice-chairman of the Hong Kong Venture Capital and Private Equity Association, said the reform plan would attract more private equity funds to Hong Kong.
A study from India's CRISIL Global Research & Analytics revealed that there has been an "accentuated" correlation among traditional asset classes over the past five years when compared with any period before 2008.
The study notes the increase in correlation has also been accompanied by lower returns, thus giving cause for concern to global fund managers. Around 88% of respondents to the survey indicated that correlation was now among the top five investment risk factors, and 65% believed that correlation was causing a "material negative impact on the availability of alpha-generating opportunities."
"Our survey shows a structural uptrend in correlation with low possibility of returning to historical levels, supported by globalization and financialization of assets," V. Srinivasan, senior director of CRISIL GR&A, said in a statement. "This will have two implications for financial research. First, research will get further streamlined; second, we will see more investments in high-end research to capture alpha."
According to the firm's analysis of 33 assets and 528 pairs of correlation from 1998 to 2012, the proportion of asset classes with correlation level above 0.3 has risen from 31% to 58% between 1998-2002 and 2008-2012. This increase in correlation is particularly pronounced during the last five years, the study adds.
It notes a "material increase in correlation across all dimensions, a corresponding drop in opportunities for securing benchmark-beating returns and a reduction in the level of outperformance."
At a more granular level, it explains, this increase is more pronounced within equities, leading to a reduction in the extent of outperformance. The equity correlation across various pairs has increased from 0.6 during 1998-2002 to a relatively steep 0.86 during 2008-2012.
This has prompted investors to pursue noncorrelated assets. However, even assets that have been historically low on correlation are now seeing a rise in correlation with their returns converging. For instance, returns from multiasset funds, which tend to invest in alternative asset classes, have converged with the MSCI World Index, an equity index.
"We see this becoming a trend," Suresh Krishnamurthy, director of CRISIL GR&A, added. "As newer, noncorrelated assets emerge, we see them eventually getting correlated and offering lower alpha potential over time. This calls for a healthy pipeline of new-age alternative assets to emerge."
Even as correlation has emerged as a key risk factor, CRISIL GR&A believes it will soon develop into an investable asset class of its own, similar to the way in which volatility has transformed from a risk factor to an asset class. The signs are already visible, as seen in the CRISIL GR&A survey, which was conducted with global fund managers spread across Americas (60%), Europe (33%) and Asia (7%).
Bloomberg's Businessweek reported on the Japanese revival, and its effect on the Japanese bond market. "Shock-and-Awe monetary policies, announced in April, have sent Japanese government bonds, this nation's equivalent of U.S. Treasurys, into a whirl of volatility" the piece says. See Asia Pacific Intelligence's news from the front line with an interview with Michael Kretschmer of Pelargos on managing a long/short Japanese equity portfolio in the volatile environment.
Gottex and Staples Rodway Asset Management Ltd announced a joint venture in New Zealand, Gottex SR Funds Ltd (GSRF), designed to offer multi-asset investment products to New Zealand investors seeking diversified international investment exposure. The press release said the joint venture combines: "Gottex's well-established research, global reach and expertise in multi-asset portfolio construction and management with Staples Rodway's excellent reputation for providing clients in New Zealand with sound financial advisory services".
Hedge Fund Intelligence reported that large scale Asian hedge funds had performed best over April, with Macquarie's $1.76bn Asia Alpha Fund gaining 3.4% over the month, bringing its year to date figure to 12.35%.
Bloomberg reported that the team at HSBC Asia Prime-Finance was hoping to double its hedge fund assets. The piece said that HSBC Holdings Plc (HSBA), the largest European bank by assets, plans to double its Asia-Pacific prime finance team's cut of hedge fund assets in the coming year, quoting Melvyn Ford, regional head of the business.
Currently standing at the eight largest prime broker in the region, according to an AsiaHedge survey, Ford confirmed he was planning to improve its standing by two places to the region's sixth-largest prime broker over the next 12 months.
The Bloomberg piece explained that HSBC was a late entrant to the Asia-Pacific prime brokerage market dominated by the likes of Goldman Sachs Group Inc., Morgan Stanley and Credit Suisse Group AG. Again, quoting AsiaHedge, the piece found that banks are competing for regional hedge-fund assets that slipped 1% to $139bn in 2012 after the closures of those unable to cope with falling revenue and rising costs that cut the number of funds by 5%. Other findings from the piece include the fact that HSBC has been the biggest hedge-fund administrator in the region, securing 33 sole and shared prime-brokerage mandates from regional hedge funds, 24 of them from those based in Hong Kong and China, with the survey estimating that HSBC was responsible for some $3bn in cash and securities under administration, with over 80% of HSBC's Asian prime-brokerage clients established managers, which have been operating for some time, while seven of the 10 largest China-focused managers are clients of HSBC's prime-brokerage unit. Some 70% of Asian prime-brokerage revenue is still generated from U.S.-based clients according to Ford, and the bank was the second-largest underwriter of Asia-Pacific debt offerings last year as well as the 11th-largest arranger of equity and equity-linked securities sales, according to data compiled by Bloomberg.
Opalesque reported that Gilbert Tse of Fortune Group, interviewed in the October issue of Asia Pacific Intelligence about the launch of a China fund investing with Winton Capital, has been promoted to head of Asia for Lyxor.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.