About 20 per cent of hedge funds in Asia shut since January 2008

Date: Tuesday, April 28, 2009
Author: Business-Standard.com

Almost 20 per cent of Asia-Pacific hedge funds closed in the 15 months to March, with the rate set to accelerate as rising operating costs hit smaller managers, according to London-based AsiaHedge magazine.

In 2008, 129 funds were shuttered in the region, the most in at least eight years and more than double the number in 2007, according to a statement from the magazine, which tracks more than 1,000 hedge funds. Another 17 closed in the first quarter.

"Many of the smaller shops we see closing today started life on a shoestring budget and lacked staying power in the area of operating capital," said Ed Rogers, chief executive officer of Rogers Investment Advisors, a Tokyo-based hedge-fund advisory firm. "It is unfortunate, but not surprising, to see these funds being forced to close not because of poor performance, but because of poor business planning."

Hedge funds globally are reeling after they lost 19 per cent on average last year and investors withdrew $155 billion, the worst performance since Chicago-based Hedge Fund Research started keeping records. With falling fee income, they are also struggling to spend more on improving reporting and risk management to retain investors.

Investor redemptions, more than fund performance, led to the rising closure rate since September, AsiaHedge said.

Investor withdrawals
"Running a hedge fund became much more difficult in 2008," AsiaHedge editor Paul Storey said in the statement. "Only those that navigate the markets and can meet increasing investor, operational and regulatory demands will survive."

Clients withdrew almost $24 billion from Asia-focused hedge funds last year, according to Singapore-based Eurekahedge. Asia-focused funds lost 21 per cent of their value in 2008, said the data provider.

Asian investors' hedge-fund holdings may have declined 40 per cent over the 18 months to mid-2009, said an official at Bank of New York Mellon Corporation, the world's biggest custody bank.

Hong Kong-based funds were the hardest hit in 2008, with 27 closures, AsiaHedge said. Thirty-two Japan-focused long-short equity funds that bet on the rise and fall of the country's stocks shut down last year, the most closures among investment strategies. Another five such funds closed in the first quarter.

In addition, 12 Japan market-neutral funds went under in 2008. Market-neutral funds seek to profit without taking a bet on the direction of the market.

"While the numbers taken at face value paint a bleak picture, I believe this shakeout is positive for the Asian hedge-fund industry," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "The managers that survive will represent a new Asian hedge-fund industry that is more diverse in strategy makeup and robust in quality."

More than 80 per cent of Asian hedge funds won't be able to charge their investors performance fees after finishing 2008 below their peak net asset values, said Eurekahedge.

Hong Kong-based APAC Capital Advisors pulled the plug on its Greater China Fund in September after assets declined to about $10 million from a peak of about $55 million, managing director Ken Lu said in November.

Tozai Investment Advisory, a Tokyo-based hedge-fund advisory firm, was closing its business after market losses and investor redemptions cut its funds assets to zero from a peak of $70 million, senior partner Angus McKinnon said in December.