HFO and GFS Pty Ltd announced a merger this summer with added news that the combined company will be headquartered in Hong Kong. In an interview with Opalesque, Ben Parker, HFO founder and ceo of the company, explained that his firm provides middle and back office operational solutions to managers, so they fit between the manager and the execution and portfolio management processes and between fund administrators and prime brokers. Their target market is hedge funds, family offices and institutional funds.
"We are an alternative to resourcing those functions internally," Parker says. "We are an institutional scalable option to running those functions in-house." Parker has impeccable hedge fund credentials having been CEO and CFO of Tudor-seeded Arnott Capital in Sydney for five years and before that the London representative for SAC Capital (in happier times for that company) for five years.
Arnott Capital built up to $1bn under management but was hit by the global financial crisis. "At Arnott, as a hedge fund, we had invested in building our own internal support system and we saw an opportunity to support our peers who were struggling to find the expertise. So we kicked off in 2010 supporting other hedge funds and small family offices and our business has grown to where we now support about 40 individual funds" Parker says.
The merger with GFS came as Parker realised the firm had a similar mind set to HFO. "They had heavily invested in systems and infrastructure and we saw quite an overlap in what we were doing and similar core systems, vendor systems and we believed that by partnering we could service their existing functions and help them reduce costs."
Parker also has expansion plans to continue with system development and expand the company's geographical presence to Europe and the US.
Looking specifically at the Asian market, Parker says: "There's been a growth in Asian-based strategies being run out of Asia whereas years ago many would have been run out of London or the US - it's a growing trend for placement of portfolio management talent in Asia itself."
Parker says that Hong Kong represents about 50% of hedge funds in the region whether by number of managers or assets under management and that is followed by Singapore with about 20% and then Australia with less than 10% and the rest spread across Asia. "For us, Hong Kong was the natural place for us to have our head office. It will be our base for growth not just in Asia but for targeting opportunities in Europe and the US."
Parker believes it is still a struggle for smaller managers to get started. "That is part of the demand for what we are doing as we are a cost-effective option for a manager. From a functional perspective we don't care what size they are but there is greater demand from managers in the sub $200m category."
Parker says the business model works because they are not just hedge fund-focussed but also work with family office and institutional managers. "There is definitely increasing demand for outsourcing across the board, from 25-30% managers focused on outsourcing to keep overheads low and those numbers are growing. It's great for us," he says.
This piece first appeared in Opalesque on 14th August.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.