James Williams, news editor, Hedgeweek

Asian hedge funds reach record numbers in Q3, Eze Castle Integration expands cloud services to HK and Singapore…

Eze Castle Integration, a leading provider of IT and private cloud services to the hedge fund community, announced this week that it had expanded its Eze Private Cloud services to Hong Kong and Singapore.

The cloud is used by more than 2,000 hedge fund professionals globally to help reduce upfront capital costs yet at the same time enjoy what the firm calls an “enterprise-grade” IT infrastructure akin to that used by billion dollar funds. Hong Kong and Singapore-based hedge funds now have access to a range of offerings including the Eze Managed Suite and application hosting, the former giving users file services, email security, mobile solutions, disaster recovery and round-the-clock support.

Serge Bukhar, executive director of international operations, Eze Castle Integration, said that the firm saw “tremendous opportunity” for private cloud services in the Asia Pacific region, adding: “This latest expansion of the Eze Private Cloud reinforces our commitment to being the global technology partner to the hedge fund industry and fills a market need for fully managed cloud services that combine premier technology with exceptional client support.”
 
Asia’s hedge fund industry reached a new high-water mark with respect to the number of hedge funds in the third quarter of 2012 as strong performance across Emerging Asian strategies continued to attract local and global investors according to the latest data released by Chicago-based Hedge Fund Research.

There are now some 1,128 funds in the region, managing a combined AUM of USD84.3billion. Good performance in Q3 helped AUM increase by USD1.9billion, although this was partially offset by net investor redemptions of USD900million. Looking at performance, the HFRX India Index gained over 12 per cent in Q3, and is up 22.4 per cent through the end of Q3. Korea-focused hedge funds also did well last quarter, the HFRX Korea Index advancing +7.6 per cent. China-focused hedge funds posted more moderate gains of +1.9 per cent, although this is still a significant outperformance relative to Chinese equities, the Shanghai Composite Index having declined -6.26 per cent.

Kenneth J Heinz, President of HFR, said that the Asian hedge fund industry continued to generate “favourable performance dynamics” and noted that the development of more sophisticated hedge fund strategies was contributing to “increasing and consistent outperformance of regional broad based equity index benchmarks”. Added Heinz: “Asian hedge fund strategies have increasingly utilized sophisticated investment strategies to isolate trading opportunities and structural inefficiencies unique to the Asian marketplace. As a result of these, many Asian hedge funds possess competitive advantages of powerful performance generating and funding capabilities not easily accessible outside Asia.”

In slightly more downbeat news, it seems smaller Asian hedge fund managers are continuing to struggle to attract global investor interest, regardless of how compelling performance might be. As reported by Reuters this week, Doric Capital, the Hong Kong hedge fund run by Howard Wong and Rajesh Ranganathan, has produced returns nearly four times better than its peers this year yet cannot seem to build the fund’s AUM of USD44million.

Consequently, the team is having to downsize and move to a different office to cut costs. This catch-22 situation of smaller funds delivering good alpha returns, yet failing to attract meaningful tickets to grow AUM and thereby attract even more investors, is a peculiar quirk of Asia’s hedge fund industry and one that seems to confound logic.
More than 70 Asia hedge funds have shut up shop this year, more will follow. Overall, the region’s total AUM is shrinking. Collectively, Asian hedge fund managers are now running just USD144billion – a rather different figure to that provided above by HFR – which is 30 per cent down on 2007. By contrast, total industry AUM is now some USD2.2trillion.

Ronnie Wu, chief investment officer at Gottex Penjing Asset Management
, was quoted as saying: “From an asset allocator point of view, I think more and more hedge funds locally are becoming uninvestable.” Not what the likes of Doric Capital and others will want to hear. The big problem with Asia is that prior to the crisis most investors were family offices or fund of funds. Now, with the majority of inflows coming from big institutions with more exacting demands, Asian managers with less than USD100million are having a hard time getting their voice heard. “US investors want to invest more in Asia, but until Asian hedge funds get bigger, they can’t,” Edward Moon, CIO of Woori Absolute Partners, told Reuters. “Something has to give.” 

Finally, Mount Kellett Capital Management LP is calling it a day on its Asian equities hedge fund to focus on credit investments instead reported Bloomberg this week, based on speaking with people familiar with the matter. Simon Kemp, Mount Kellett’s Asia trading head based in Hong Kong, and an analyst, have subsequently both left the New York-based hedge fund. Mount Kellett Asia Partners, which focused on Asia, started trading in August 2010 and was managed by Jason Maynard, the company’s co-owner. Maynard will continue to head up Asia. Hani Abuali, who joined as a Hong Kong-based managing director in November 2011, will also stay on according to the sources. The fund, which focused on large cap companies across Asia, combining bottom-up fundamental stock picking with macroeconomic views, was apparently up 7.8 per cent before fees. 

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