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Hong Kong Hedge-Fund Market Asia’s Biggest, AIMA Says

Date: Wednesday, May 6, 2009
Author: Bei Hu, Bloomberg.com

Hong Kong remains the largest hedge fund center in Asia, with managers in the city overseeing $22 billion in assets as of December 2008, the Alternative Investment Management Association Hong Kong said.

The city had 245 hedge fund managers by the end of last year, compared to 150 in Singapore and 145 in Australia. There were 30 hedge und startups in Hong Kong in 2008, raising the most assets for Asian hedge fund managers with $1.6 billion, AIMA said today, citing AsiaHedge data. Singapore had the second-most startups with $638 million.

“Hong Kong has robust and effective regulations governing the hedge fund industry which have stood it in good stead during the current financial crisis and have enhanced this market’s status on the global stage,” Christophe Lee, chairman of the Hong Kong and China national group of London-based AIMA, said in a statement. AIMA is an international trade body for the hedge- fund industry.

Hedge funds globally are trying to rebuild their assets and improve their performance after the worst annual returns and record investor redemptions last year. Assets of Asia-focused funds shrank faster because of their larger investment losses.

The HFRI Fund Weighted Composite Index retreated 19 percent in 2008, the worst return since Chicago-based Hedge Fund Research Inc. began keeping data. Investors withdrew a record $155 billion of capital from the industry last year, according to Hedge Fund Research.

New Funds

Asian hedge fund assets declined 28 percent to $126 billion last year, outstripping the global decline of about 22 percent, according to the latest data from Singapore-based Eurekahedge Pte.

Hong Kong was the only major hedge fund center which had more startups than closures last year, AIMA said, quoting AsiaHedge data. The number of startups in Hong Kong increased from 25 in 2007, and funds raised jumped 22 percent last year over the previous 12 months, according to Neil Wilson, editorial director of HedgeFund Intelligence, which publishes AsiaHedge.

Asia-Pacific hedge fund startups plummeted 35 percent to 75 last year, he said. Funds raised by startups last year in the region plunged 62 percent to $3 billion over 2007.

‘Year of Startups’

Talent leaving investment banks, which are reducing proprietary trading, and managers departing global hedge funds to start their own, will continue to drive startups in Hong Kong this year, Lee said at a briefing in Hong Kong today.

“This probably will turn out to be the year of the startups,” he said. New funds are “planting the seeds” for future industry growth, he added.

In the 2000 to 2002 period, most new hedge fund managers came from a mutual fund background and focused on betting on stocks rising or falling, Lee said.

The more recent wave of new entrants from investment banks and global funds tend to start funds that trade frequently, and invest in distressed assets or companies going through corporate events that could affect securities prices.

“The new managers will add to the diversity of strategies we’re seeing in Asia, which is a good sign of a maturing industry,” said Lee.

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