Up to USD50bn available to Asia focused funds… Asia Pacific turns to hedge funds…
As much as USD70 billion is up for grabs for global hedge funds looking to raise money in Asia over the next few years, according to a Barclays survey.
Vast private wealth in the region and the rise of several large sovereign-wealth funds has long been an opportunity for global hedge fund managers. Asian investors, though, continue to account for a small portion of industry assets and have proven notoriously hard to win over.
Investors in the region currently account for around USD150 billion invested in global hedge funds, Barclays said, a sliver of the roughly USD2.5 trillion managed by the industry. Of the up to USD70 billion the bank estimates will be on the table over the next few years, roughly half would be new assets.
Barclays said managers should be on the watch for Japanese corporate pensions looking to increase their allocations to alternative investments, as well as Korean institutional investors that could in the coming years make their first foray into hedge fund investing.
Potential regulatory changes allowing Chinese insurers to invest in offshore managers should also be on the radar, Barclays said.
Asia-Pacific investors will pump an additional USD15 billion-USD35 billion into hedge funds in the next three years, with Japan and Australia leading the way.
However, Chinese investors are likely to remain laggards, despite Ken Griffin’s Citadel last week becoming the first foreign hedge fund manager to complete a renminbi fundraising under a trial scheme. Citadel was one of six foreign groups given approval in September to raise USD50 million from wealthy Chinese individuals under Beijing’s Qualified Domestic Limited Partner Programme.
David Bennett, Barclays’ head of capital solutions in Asia, said this was a “very small step in creating a wave of hedge fund investing” on a continent where only 6 per cent of hedge fund assets emanate from private investors. This is well below the 40 per cent elsewhere in the world.
The impact would be “dramatic” if China allowed its insurance companies to start investing in hedge funds, although “nobody is banking on that happening in the next three years”, said Shelly Li, director of hedge fund consulting at Barclays.
Barclays believed Japan, which already accounts for USD70 billion of the USD150 billion of Asian hedge fund investments, would lead the way with USD20 billion of inflows from corporate pensions in the next three years, although this would be offset by redemptions by banks and industry pensions.
Australia’s fast-growing superannuation funds will allocate a further USD5 billion to hedge funds, Barclays forecasts, but South Korea remains a “hypothetical” market unless the National Pension Service starts allocating to the asset class and the “collective mindset” changes from seeing hedge funds as “speculative vehicles”.
Credit Suisse, one of the world's largest private banks, is expecting a good year for its alternative investment business as the super-rich increase their exposure to hedge funds in light of record low returns for bonds, reports The South China Morning Post.
Last year was the first time the market saw negative total returns on many safe-haven bonds such as US treasuries and German bunds. In comparison, hedge funds had their best performance since 2010, posting a return of 10 per cent on average.
Michael Levin, the head of alternatives for private banking at Credit Suisse in the Asia-Pacific, told the South China Morning Post many ultra-rich individuals were considering cutting investment grade bond exposure and buying into hedge funds.
"Asia-based investors who may have been under-allocated or not allocated in hedge funds are increasingly rethinking their hedge fund exposure," Levin said. "Both Asian and global investors are seeking to invest in hedge funds as a risk-reducing [strategy] for their portfolio, rather than risk-seeking.
"The inclination for investors in Asia to invest in hedge funds was … to see hedge funds as a risk-reducing proposition and a portfolio diversifier as they need to generate a fixed-income replacement strategy."
Total hedge fund assets globally surged to another record high in the first quarter, marking the seventh consecutive quarterly record, according to Hedge Fund Research. But returns from this asset class are less spectacular: a hedge-fund index tracked by HFR shows a 0.27 per cent loss year-to-date.
Levin said investors were still flocking to hedge funds not because they were seeking "absolute returns", rather they wanted "asymmetric returns" - an investment strategy that maximises upside potential while capping downside risks.
"A lot has changed since 2008. There was a misconception of what hedge funds delivered and that the term 'absolute return' was perceived by people to mean 'make money in all environments'. I think 2008 exposed the reality of hedge funds and helped redefine what the objective is - which is to deliver asymmetric return," Levin said. "I think investors should have very realistic expectations of what hedge funds can deliver."
The TWD2.5 trillion (USD83.3 billion) Taiwanese Labor pension fund is to more than triple its allocation to alternative assets, its governing body has announced.
Director General Huang Chaohsi of the country’s Bureau of Labor Funds told Reuters that the pension’s investment team intended to put an additional TWD110 billion into alternative investments in 2015, up from its current TWD50 billion held in this sector.
Huang said these alternatives could include real estate, hedge funds, private equity, commodities, and energy products.
“Alternative investment is the way to go for our future strategy,” said Huang. “We have done extensive research, which showed returns generated by alternatives are much better than equities.”
Taiwan’s Labor Fund has generated a 24.8 per cent return from the USD1.25 billion invested in alternatives since 2012,Reuters reported. The fund is set to allocate 8 per cent of its total funds to alternatives in 2015. This year, it has around 6 per cent in the sector, up from 4.2 per cent in 2013, Huang said.
Hedge funds based in Asia have generally outperformed their international rivals in recent years, data showed in January. These funds (excluding Japan) gained 15.85 per cent in 2013, data monitor Eurekahedge said in its end-of-year report. This outstripped performance by funds based in the larger hubs of North America and Europe. Investors allocated USD11 billion to these funds, the report showed—the largest amount for six years.
The Taiwanese fund retains a substantial allocation to traditional asset classes, however. It has set a 25 per cent target for its domestic equity portfolio, amounting to almost USD20 billion. Huang said the fund would outsource TWD42 billion of mandates in local stocks to asset managers in the second half of 2014, in addition to the TWD42 billion awarded in the first six months of this year.
The Eurekahedge Asian Hedge Fund Awards 2014 returned to Capella Singapore for its 11th run on 23 May 2014. Some 300 hedge fund players got together to celebrate the region’s 76 top performing Asian hedge funds.
A total of 14 awards were presented on the night with The SFP Value Realization Fund clinching two of the three awards they were nominated for; the Best Asian Hedge Fund award, along with the Best Asian Event Driven Fund award for the second consecutive year.
Their double win was closely followed by Fortress Asia Macro Fund, who held on to their titles from 2013 (Best Asia-based Macro Fund and Best Singapore-based Hedge Fund; both for the second consecutive year).
Nominated in three categories this year, new winner Hayate Japan Equity Long Short Fund won the Best Japan Hedge Fund and Best Asian Long/Short Equities Fund award. Another fund holding on to their 2013 title was GCI Japan Hybrids (Best Asian Multi-Strategy Hedge Fund).
The rest of the region’s top performers were Orchid China Master Fund (Best Greater China Hedge Fund), Steinberg India Emerging Opportunities Fund (Best India Hedge Fund) and K2 Asian Absolute Return Fund (Best Asia ex-Japan Hedge Fund). We also welcomed newcomer Auscap Long Short Australian Equities Fund (Best New Asian Hedge Fund) to the industry.
Winners of the strategic investment mandate awards include Boronia Diversified Fund (Best Asia-based CTA/Managed Futures Fund), Regal Amazon Market Neutral Fund (Best Asian Relative Value Fund), Terra Grove Japan Fund (Best Asian Quant Fund) and GCI Japan Hybrids (Best Asian Multi-Strategy Hedge Fund).
For 2014, Eurekahedge picked Children of Cambodia: a Singapore-based charity association to receive the proceeds from this year’s charity auction. A silent auction of three paintings and a live auction of one painting were held to raise funds. The funds will be donated to support Children of Cambodia’s partner, the Angkor Hospital for Children. Eurekahedge would like to extend our appreciation to all winning bidders for contributing to this cause.
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