The Missing Link: Big Single Managers in Asia
"Sometimes one must travel far to discover what is near."
The Treasure, Uli Shulevitz, 1978
Moreso in 2010 than at any other time in recent memory, Asia lacks it own big hedge funds. Big hedge funds are important. They tend to spin-off successful smaller managers that tend to start out themselves fairly big (e.g. Treeline Capital from LIM Investments); they are immediately attractive to institutional investors; and, they are important to the long term sustainability of liquidity in Asia's equity markets.
The fact is that there are well over 100 funds with an excess of $3 billion in assets under management globally ex-Asia. In Asia alone this number shrinks to less than 10 funds and that includes private equity, activists and arbitrageurs. Since 2008 that number is starting to dwindle too. This is not to defend a big-is-beautiful-thesis but the fact remains that smaller funds tend to be susceptible to greater business risks, especially if a given investment stategy sours (see recent performance of Artradis Barracuda Fund...)
In Asia, the hedge fund industry needs "leaders". Good performing leaders should have an array of strategies and "product wrappings" (absolute return and long-only), they should be attractive to Asian and western institutional investors; they should have the capability to raise $5 billion in order to be classified as "big"and they should have a pan-Asian investment focus. To many managers have realized late in the day that being only Japan-only is not going to help you raise more than a few hundred million dollars in assets - and if you can, then there is a tremendous geographical concentration risk you are imposing on opportunities and in so doing the risk/return that can be generated.
The good news that end 2009 pan-Asia long short equity managers have been able to generate an attractive average return of 17.80% (HSBC Private Bank Equity-Diversified strategy covering 17 funds). The bad news is that in the recent bullish run this still lags many long-only ETFs, which also do demand 2-2o in fees!
Perhaps the wave of the future will be large private equity shops in Asia evolving into hedge funds. Also, there may yet be a role for the region's SWF entities to build up internal operations and ultimately spin-off those entities through MBOs in order to "create" the next wave of Asian hedge fund behemoths. The clock is ticking. Mahalo.
"Sometimes one must travel far to discover what is near."
The Treasure, Uli Shulevitz, 1978
Moreso in 2010 than at any other time in recent memory, Asia lacks it own big hedge funds. Big hedge funds are important. They tend to spin-off successful smaller managers that tend to start out themselves fairly big (e.g. Treeline Capital from LIM Investments); they are immediately attractive to institutional investors; and, they are important to the long term sustainability of liquidity in Asia's equity markets.
The fact is that there are well over 100 funds with an excess of $3 billion in assets under management globally ex-Asia. In Asia alone this number shrinks to less than 10 funds and that includes private equity, activists and arbitrageurs. Since 2008 that number is starting to dwindle too. This is not to defend a big-is-beautiful-thesis but the fact remains that smaller funds tend to be susceptible to greater business risks, especially if a given investment stategy sours (see recent performance of Artradis Barracuda Fund...)
In Asia, the hedge fund industry needs "leaders". Good performing leaders should have an array of strategies and "product wrappings" (absolute return and long-only), they should be attractive to Asian and western institutional investors; they should have the capability to raise $5 billion in order to be classified as "big"and they should have a pan-Asian investment focus. To many managers have realized late in the day that being only Japan-only is not going to help you raise more than a few hundred million dollars in assets - and if you can, then there is a tremendous geographical concentration risk you are imposing on opportunities and in so doing the risk/return that can be generated.
The good news that end 2009 pan-Asia long short equity managers have been able to generate an attractive average return of 17.80% (HSBC Private Bank Equity-Diversified strategy covering 17 funds). The bad news is that in the recent bullish run this still lags many long-only ETFs, which also do demand 2-2o in fees!
Perhaps the wave of the future will be large private equity shops in Asia evolving into hedge funds. Also, there may yet be a role for the region's SWF entities to build up internal operations and ultimately spin-off those entities through MBOs in order to "create" the next wave of Asian hedge fund behemoths. The clock is ticking. Mahalo.
posted by Franklin Scruggins | 1:39 PM
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