2007 Asia Hedge Fund Performance

"Take the loos - I've always believed industrial democracy starts in the lavatory".

Sir Peter Parker
former chairman of British Rail

With the final tally of 2007 performance all but in, the first Investment Fund Performance Review of 2008 produced by HSBC Private Bank plus listings of Bank Syz, Hedge Fund Advisory Group painted the expected final picture for the calendar year.

Per HSBC data, out of approximately 300 funds across all strategies and geographies 4 of the Top 20 "Winners" based upon absolute performance (20%) had an Asian focus: this compared with none in 2006.

For Bank Syz, the Asia impact was more startling accounting for 9 out of their 20 top performing funds for the year!

Those winning HSBC listed funds for 2007 included: 788 China Fund Limited (114.74%), Eastern Advisors LLC (85.30%), Alphagen Tenro Fund Limited (58.32%) and Boyer Allan Pacific Fund Inc. - A (52.06%).

For Bank Syz (that tends to have a greater Indian contingent of managers) the winners included: Golden China Fund (96.95%), Kotak Indian Mid-Cap Fund (86.72%), Boyer Allan Greater China Fund A1 (77.38%), Boyer Allan India Fund (68.77%), India Capital Fund A2 (68.42%), LG India Fund Limited (62.15%), Tree Line Asia Fund (60.33%), WF Asian Smaller Companies Fund (48.19%), and Acru China & Absolute Return Fund (46.14%).

In terms of "Losers" (measured in terms of absolute performance) the list showed that again 4 out of the bottom 20 performers were Japan-focused funds. Although no moral victory, this did represent some form of improvement over calendar year 2006 in which 12 out of the 20 Losers (60%) had a Japan focus. The bad news that a couple of the funds displayed persistence on the downside appearing again on the list of losers (Blue Sky and Melchoir).

Those losing HSBC funds for 2007 included: Blue Sky Japan Class A (-35.11%), Odey Japan & General Inc USD (-25.82%), Melchoir Japan (-16.28%) and Henderson Japan Absolute Return Fund Limited (-10.18%).

For Bank Syz listed managers 9 out their top 20 worst performers were Japan strategy or Asia strategy managers.

Clearly, expect investors to maintain a "hands-off" approach to Japan long/short equity managers UNLESS they can demonstrate an ability to produce alpha in the current tough market conditions. In that case good, experienced Japan managers could easily raise assets and would do well to open new strategies too. The demand will be there.

One might also expect some flexibility among existing managers in terms of the fee arrangements (for example lower fees or fees tied to benchmarked targets in some cases) as they struggle to maintain their current investor base.

Expect too that investors in the US and Europe will probably rotate funds out of Japan into more pan-Asian exposures, a trend which has been going on anyway throughout 2007. A number of institutional investors in the U.S. including pension funds have been doing this.

In contrast, those Japan-focused funds that do produce alpha and great returns might expect to garner a lot of funds in 1Q08 , to close very quickly and to have the benefit of fee-setting inelasitcity. 2008 should be another interesting year with excellent performance prospects given the emergence of volatility across a number of markets. Mahalo.