Key trends in Asian hedge funds
The Asian hedge fund industry is still in its infancy, but
the last twelve months have been a period of hectic growth.
We expect dedicated Asian hedge fund assets to grow by 40%
this year from US$14 billion to US$20 billion. The increase
will comprise an estimated US$5 billion of net new money and
US$1 billion through performance. In addition, we estimate
that managers have a further US$4 to 5 billion of hedged strategy
assets in managed accounts. The number of funds is likely
to increase from 160 in January 2002 to 250 by the year-end.
Likely development of the marketplace
The Asia-Pacific markets represent 15% of world market capitalisation
compared to approximately 40% from the United States. The
US markets support an estimated 3,500 hedge funds. In contrast
the Asia Pacific region will have 250 by year-end. This discrepancy
is more pronounced in Japan, which has close to 10% of world
market capitalisation but has less than 75 dedicated hedge
The regulatory environment is changing to the benefit of
the hedge fund industry; for example, despite occasional setbacks,
the trend in terms of the liberalisation of short-selling
Asia currently is a small source of funds for Asian strategy
hedge funds and this is unlikely to change significantly in
the short term; though the development of dedicated Asian
funds of funds and other capital allocators in Asia and outside
should further promote single-manager growth.
Latest trends in asset flows to Asian funds
Assets are flowing principally to long/short equity funds,
which remains the most popular Asian strategy. This is due
mainly to the lack of opportunities in other strategies, a
situation that continues to exist in Asian markets.
Funds are derived principally from the US and Europe; Asia
remains relatively small - we estimate that less than 1% of
the assets in Asian funds are derived from Asia. Inflows are
favouring a limited number of funds, our analysis suggest
that in excess of 90% of the new money is going to between
10 and 15 of the hedge funds.
Physical location still important
The main centres by number of funds remain London, Hong Kong,
New York, Tokyo, Sydney, Melbourne and Singapore. The last
12 months has seen strong growth in the number of funds in
each of these centres, Singapore has seen the greatest number
of new funds though they are generally small. Growth of assets
has been highest for New York and London funds - being closer
to the investors still counts.
Start-up activity brisk
Recent success stories such as Ward Ferry in Hong Kong and
Speedwell in Tokyo are, we believe, spurring increased start-up
activity. The risk to reward ratio between an investment banking
career and hedge fund start-up has changed to favour the latter
and has also spurred managers on to launching new boutique
However, start-up activity is no longer dominated by new
firms; traditional managers are now launching hedge funds.
Aberdeen Asset Managers, Global Asset Management, Martin Currie,
JF Asset Management and Schroders are a few examples of large
asset-management houses launching new Asia-focused hedge funds
over the past 24 months
We are also seeing an increase in single-country hedge funds
for Korea, Taiwan and India and the return of more macro and
There is no slowdown evident in inflows to Asian start-ups.
We are currently tracking eighty potential hedge fund start-ups
of which we expect 50% to result in the formation of a hedge
Most funds however remain small, as shown in the following
table, with some 25% of funds having less than US$10m. Raising
capital remains the most significant problem for new managers
Asian hedge fund environment
In conclusion, we view the industry rather like an emerging
market, which is developing and evolving. We are seeing increased
regulatory scrutiny; particularly in Hong Kong and Singapore.
Start-ups are becoming better funded and are exhibiting increasingly
professional structures with more focus on risk control. These
are all positive signs for longer-term growth.