Through Mid-March 2008 Asian Hedge Fund Performance Sustains Black Eye
"Give an account of thy stewardship; for thou mayest no longer be steward."
The Bible, Luke 16:2
In contrast to the first quarter of 2007, this year's performance numbers for Asian hedge funds are shaping up to be pretty ugly. The U.S. Subprime Syndrome has impacted investor global risk aversion and emerging markets. That, together with the fact that China and India had overextended market valuations at the end of 2007 has seen Asian markets suffer steep pullbacks.
According to Banque Syz data through March 13, 2008 11 out of the bottom 20 performing managers (55%) had an Asian geographical focus; with India suffering particualrly hard. For HSBC Private Bank data for the week ending March 14, 2008 7 out of the bottom 20 (35%)performing managers had the same Asian focus. What a complete turnaround from 2007.
Based upon March 20 2008 data from the HSBC Private Bank list of hedge funds some of the strategy level numbers for the managers they cover are worrisome indeed. For example, Asian multi-strategy was up 1.71% YTD (for funds with combined assets of US$2.6 Billion); for Asian equity funds the YTD return on an equal-weighted basis was minus 6.86%; and, for Japan equity funds representing AUM of US$7.92 Billion) the YTD average performance has been minus 7.28%. Again many constitutents have returned negative performance in the double digits.
Although only a sub-set of all hedge funds in Asia the author has noted that for the first time combined assets of hedge funds dedicated to Asia (often ex-Japan) now exceed those for Japan.
Japan authorities take note, investors appear to be leaving Japan hedge funds as well.
Asset Flee Risk? The recent disappointing performance pullback is particularly irksome when one considers that many hedge funds are in the minus 15% to minus 20% area on a YTD basis with the negative outliers in the minus 55% to minus 33% range.
A further consequence of this is that it might also dampen somewhat any talk of true global decoupling on a corporate performance level of Asian funds when compared to the hedge fund performance of the U.S. and Europe. Maybe we are not quite there yet.
Third, it might also say a lot more about the fact that liquidity and momentum still fuel many of these markets, at least on the equity side. It again puts managers there under the microscope in terms of whether they do in fact have the ability to generate alpha.
What the poor performance and ancedotal evidence of investor redemptions do suggest is that a clearing out of hedge fund managers is underway. With assets in a a number of funds now close to or indeed under US$100 Million those firms must now shortly make up their minds if they can afford to continue. When assets are so low the firms in question must go back to square one to find investors, especially as institutional investors are bailing "en masse".
Investors are now in stomach-churning-mode. Based upon steep YTD losses or shrinking AUMs or some combination of both a number of Asian hedge funds are likely to be susceptible to some form of "re-organization". This might include suspended redemptions, rolling the failing fund into other more sustainable products within the same firm or it might mean outright fund and firm closure. The risk now exists for a sustained reduction in investor assets in Asian hedge funds. It has been happening in Japan the last 18-24 months. Tough times are ahead.
The survivors will have larger assets, institutional infrastructure, different product offerings and a convincing story to pitch to investors.
And, until a U.S. recession becomes a reality on a global basis this might be precisely the time to take a look at some of these battered markets and decide how to re-allocate assets among the Asia regions most talented hedge fund managers...especially those that know how to short.
Mahalo.
"Give an account of thy stewardship; for thou mayest no longer be steward."
The Bible, Luke 16:2
In contrast to the first quarter of 2007, this year's performance numbers for Asian hedge funds are shaping up to be pretty ugly. The U.S. Subprime Syndrome has impacted investor global risk aversion and emerging markets. That, together with the fact that China and India had overextended market valuations at the end of 2007 has seen Asian markets suffer steep pullbacks.
According to Banque Syz data through March 13, 2008 11 out of the bottom 20 performing managers (55%) had an Asian geographical focus; with India suffering particualrly hard. For HSBC Private Bank data for the week ending March 14, 2008 7 out of the bottom 20 (35%)performing managers had the same Asian focus. What a complete turnaround from 2007.
Based upon March 20 2008 data from the HSBC Private Bank list of hedge funds some of the strategy level numbers for the managers they cover are worrisome indeed. For example, Asian multi-strategy was up 1.71% YTD (for funds with combined assets of US$2.6 Billion); for Asian equity funds the YTD return on an equal-weighted basis was minus 6.86%; and, for Japan equity funds representing AUM of US$7.92 Billion) the YTD average performance has been minus 7.28%. Again many constitutents have returned negative performance in the double digits.
Although only a sub-set of all hedge funds in Asia the author has noted that for the first time combined assets of hedge funds dedicated to Asia (often ex-Japan) now exceed those for Japan.
Japan authorities take note, investors appear to be leaving Japan hedge funds as well.
Asset Flee Risk? The recent disappointing performance pullback is particularly irksome when one considers that many hedge funds are in the minus 15% to minus 20% area on a YTD basis with the negative outliers in the minus 55% to minus 33% range.
A further consequence of this is that it might also dampen somewhat any talk of true global decoupling on a corporate performance level of Asian funds when compared to the hedge fund performance of the U.S. and Europe. Maybe we are not quite there yet.
Third, it might also say a lot more about the fact that liquidity and momentum still fuel many of these markets, at least on the equity side. It again puts managers there under the microscope in terms of whether they do in fact have the ability to generate alpha.
What the poor performance and ancedotal evidence of investor redemptions do suggest is that a clearing out of hedge fund managers is underway. With assets in a a number of funds now close to or indeed under US$100 Million those firms must now shortly make up their minds if they can afford to continue. When assets are so low the firms in question must go back to square one to find investors, especially as institutional investors are bailing "en masse".
Investors are now in stomach-churning-mode. Based upon steep YTD losses or shrinking AUMs or some combination of both a number of Asian hedge funds are likely to be susceptible to some form of "re-organization". This might include suspended redemptions, rolling the failing fund into other more sustainable products within the same firm or it might mean outright fund and firm closure. The risk now exists for a sustained reduction in investor assets in Asian hedge funds. It has been happening in Japan the last 18-24 months. Tough times are ahead.
The survivors will have larger assets, institutional infrastructure, different product offerings and a convincing story to pitch to investors.
And, until a U.S. recession becomes a reality on a global basis this might be precisely the time to take a look at some of these battered markets and decide how to re-allocate assets among the Asia regions most talented hedge fund managers...especially those that know how to short.
Mahalo.
posted by Franklin Scruggins | 8:19 AM
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