Post-Crisis High Inflows for New Asian Hedge Funds

(February 24, 2012)  —  Investors poured the most money into new Asia-based hedge funds last year than since the start of the financial crisis as the Far East becomes an increasingly popular destination.

Some $4.43 billion flowed into 58 new fund launches in the region in 2011, according to data monitor AsiaHedge. Although this was little more than half of the $7.8 billion raised in 2007, the figure was almost 15% higher than 2010.

Aradhna Dayal, head of Asia for HedgeFund Intelligence in Hong Kong, said: “These figures, coming at a time when the industry is grappling with widespread closures, high entry barriers, flat performance and serious capital retention issues, might raise a few questions.

“The reality is that not all of it is new capital flowing into Asia. After a hiatus of almost two years, [a] few highly regarded traders/hedge fund managers finally succeeded in launching their own ventures last year, which gave many international investors an opportunity to recycle or trade up their Asia allocations.”

Despite a more assets being gathered by the sector, fewer funds were launched than in previous years. This meant new funds gathered almost double the average assets of start-up funds in the region – $76.4 million, up from $40 million in 2010.

AsiaHedge said several large institutional investors from the United States had begun allocating assets to the region, after having completing lengthy due diligence processes.

The Towers Watson annual Asset Allocation survey in January showed that global pension investors have been ploughing an increasingly large section of their portfolios into alternatives and outside their domestic market.

This has not been missed by asset managers who have moved swiftly to take advantage of the allocation.

Dayal said: “While historically most large launches have resulted from a bank prop trading or manager spin outs, launches in the coming year will come from global hedge fund firms launching Asia dedicated strategies as well as mainland China managers setting up in Hong Kong.”

The epicentre of the financial industry in Asia, Hong Kong, was home to 20, or just over a third, of the fund launches. This was followed by Singapore with 17.

Multi-strategy funds were the most popular launches last year, gathering 60% of all new assets. This was due to deepening markets and rising volatility requiring managers to adopt dynamic asset allocation strategies to create alpha, Dayal at AsiaHedge said.