- Why is now a good time to launch an Asian fund of
hedge funds?
Now is the best time to invest because the main hedge
fund strategies in Asia are all showing exceptional promise
largely due to the opportunities arising from the ending
of the Asian economic crisis and from mispricings that
exist in Asia. We believe the following are the key indicators
to investing now:
A Young Market: One of the great attractions of
Asian hedge funds is the relatively young nature of the
market. Research shows that hedge funds often achieve
their best performance in their initial years - and most
Asian hedge funds are still less than three years old.
Also, because they are new, most managers are not yet
closed to investors.
Distressed Debt Opportunities:The improving economic
fundamentals of the region mean that 'distressed' companies
are now successfully restructuring their debt. This process
is being helped by the continual improvements in Asia's
legal and judicial structures as well as generally improving
corporate governance. The future opportunities for the
Asian distressed debt strategy look excellent.
Arbitrage Opportunities: Having withdrawn from
the region over the last few years many international
banks have yet to return, thus there is less capital chasing
the significant opportunities that exist in the inefficiencies
of the region's equity, bond and debt markets. These opportunities
have been 'arbitraged out' of the major developed markets
but can still be exploited in Asia.
Equity Long/Short Opportunities: Opportunities
exist arising from the wide dispersion in the quality
of Asian stocks and their respective growth opportunities.
- What sort of returns is the fund targeting and why
are you comfortable with such numbers?
The aim is to deliver a positive risk-adjusted net return
in most market conditions of 10-12% per annum, with volatility
of 5-10% per annum. We have done extensive back testing
on the likely initial model portfolio of funds. With more
than 50% of the funds in that model portfolio having more
than three years performance history we feel confident
that these targets may be achieved. Of course there is
no guarantee that the funds used in the back test will
actually comprise the portfolio. And, as we all know past
performance is no guarantee of future returns.
-
What do you think are the main advantages of Asian
hedge funds from an investment point of view?
ABN AMRO predicts that economic growth in the Asia Pacific
region will outperform the rest of the world over the
next few years. Domestic demand and intra-regional trade
will drive much of this growth.
As Asia grows, fuelled by the rapid rate of growth in
China and rising intra-regional trade, the Asia Pacific
markets are gradually decoupling from the US and Europe,
thus improving the diversification benefits of an Asian
exposure. This set of macro economic circumstances has
created the right conditions for hedge fund strategies
in the region.
- Is the fact that it is difficult to short equities
in Asia an issue for you?
In fact, short selling rules are being relaxed across
the region and cross-border investment increasingly permitted.
As Asia's stock markets liberalise, more opportunities
for hedge funds are being created.
- How is your Asian fund of hedge funds different from
others in the market?
Unlike the few existing multi-strategy funds focused
on the region we will be offering a much more diverse
and balanced strategic view. The existing funds primarily
concentrate on equity long/short funds and exposure to
the Japanese economy.
We also bring the major benefit of being probably the
largest global player in this product arena. This is important
when you realise that the managers of Asian hedge funds
are located throughout the world - US, Australia, UK,
Switzerland, Hong Kong, Japan and the rest of the Asian
region. Obviously keeping close tabs on all these players
requires resources often beyond the means of smaller asset
management groups.
-
Have you targeted the hedge funds that you will buy
and what sort of funds are they?
The fund aims to deliver its objective by investing
in 15 to 25 carefully selected funds across a range of
strategies. We have constructed the likely portfolio.
Obviously we cannot name the funds prior to investing
but we can give an indication of the strategy allocation.
The currently proposed allocation is:
- Credit Driven 33%
- Macro 20%
- Equity Long/Short 25%
- Relative Value 20%
- Cash 2%
We believe such an allocation will benefit most from the
economic and investment scenarios we have identified.
- What will your investment process and due diligence
consist of?
We have taken more than 18 months to fully research the
Asian hedge fund industry before this launch. There are
currently over 300 Asian hedge funds managing approximately
US$24 billion. Through our initial screening process we
selected 150 funds to physically visit and quiz the managers
on their investment processes and techniques. We will
constantly monitor the portfolio and the universe in general
in order to identify new investment candidates. We will
also continually modify the mix of strategies and fund
managers to optimise the fund's performance.
- What qualifications do you have to run such a fund?
The Alternative Investment Group at ABN AMRO Asset Management
Limited works very much as a team. The team managing the
fund comprises four investment professionals. The head
of the Alternative Investment Group, Gary Smith, has 18
years' investment experience and has been investing in
Asia for over 13 years. As the fund's senior portfolio
manager, I have 19 years' Asian investment experience.
The team has a strong network of contacts in Asia and
in the fund management and broking world outside of Asia.
The ABN AMRO Alternative Investment Group has been investing
in hedge funds since 1998. In 2000, the Group launched
the ABN AMRO Multi Strategy Fund and that fund has outperformed
the HFRI Fund of Funds Composite Index by 8.2% from inception
to end Jun 2003 and has lower volatility than the index.
Through managing the ABN AMRO Multi Strategy Fund, the
Group has already invested approximately US$120 million
in Asian hedge funds.
