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The Asian hedge fund universe has grown significantly in recent years, with around 1200 Asia focused hedge funds managing over USD 160 billion, compared to just USD 14 billion at the end of 2001*. Diversity has increased and there are now talented, credible managers in most strategies, making it possible to build a truly multi-strategy Asian fund of funds portfolio.

Sentiment in Asia remains positive, underpinned by low interest rates, record loan growth (especially in China) and policy action aimed at maintaining strong liquidity conditions and stimulating domestic demand. Asia has not seen the same level of contraction in consumption as personal and corporate financial leverage was not on a par with Western economies. Asian economies continue to grow, backed by healthy financial systems and efficient internal growth engines in Asia’s largest markets of China and India.

Whilst Japan appears susceptible to a difficult global environment given its lacklustre domestic story, opportunities exist as corporates respond to difficult operating conditions via cost-restructurings and as the market plays catch up to the rest of Asia. We decided to increase our allocation to three Japanese long/short managers in May.

We remain cognisant of the storm clouds that will continue to cause volatility, and continue to focus on liquid, flexible strategies running variable directional risk. Emphasis also remains on opportunities in FX and rates strategies given policy action......................

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