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Value Partners Says Smaller Hedge Funds Risk Being Taken Over

Date: Friday, June 6, 2008
Author: Bei Hu, Bloomberg.com

(Bloomberg) -- Value Partners Group Ltd., Asia's second-largest hedge fund manager by assets, said worsening returns in the industry may lead to bigger firms taking over smaller rivals.

``I think the industry may go through certain consolidation,'' said Chief Executive Officer Franco Ngan in an e-mail. ``Our company is financially strong and will keep an open mind to explore if appropriate opportunities arise.''

Asian hedge funds, dominated by equity-focused managers, have struggled with negative returns and redemptions this year, after the end of a five-year stock rally. Hong Kong's Hang Seng Index has tumbled 23 percent from an Oct. 30 record and Japan's Topix index has fallen 19 percent in the past year.

Eurekahedge's Asian hedge fund index dropped 5.2 percent this year, based on preliminary data for May. That's the worst start to a year since the Singapore-based company began compiling data in 2000, and the worst performance among six regional indexes Eurekahedge compiles.

Smaller, younger firms that have never weathered a market slump may struggle to attract and retain money as the global fallout from surging home loan delinquencies in the U.S. erodes appetite for risk.

``Institutional investors are becoming more and more demanding in terms of proper infrastructure such as risk control, compliance, operation, information technology, client services and reporting,'' Ngan said. ``The situation is more challenging for smaller boutiques with a relatively short track record.''

Assets Under Management

Fifteen-year-old Value Partners managed $6.5 billion of assets, including private equity, at the end of April. The fund manager's Hong Kong-listed shares have fallen 0.8 percent since they started trading in November.

LGT Capital Partners, a Swiss manager of more than $17 billion of hedge funds and private equity investments, in April agreed to buy KGR Capital Management Ltd., a Hong Kong manager of $350 million of funds of hedge funds.

The same month, Ifil Investments SpA, the Agnelli family company, bought 58 million euros ($90 million) of bonds that can by 2013 be converted into a 40 percent stake in Vision Investment Management, a Hong Kong-based manager of funds of hedge funds.

PMA Investment Advisors Ltd. bought Hong Kong-based Trigon Advisers in October 2006. Hong Kong-based PMA was itself acquired in the same year by Sparx Group Co., the Tokyo-based company that was ranked by Alpha magazine as Asia's largest hedge fund manager by March 2007 assets, ahead of Value Partners.

The $1 billion Value Partners Classic Fund, its oldest, posted negative return of 10.4 percent this year, according to data compiled by Bloomberg. The fund returned more than 40 percent in both 2006 and 2007, Bloomberg data shows.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net.