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Asia Hedge Funds on ‘Radar’ After Beating Peers, Citigroup Says

Date: Monday, June 15, 2009
Author: Netty Ismail, Bloomberg.com

Asian hedge funds are attracting growing interest from investors as managers focusing on the region outperform global peers, said Andrew Hill, director of prime finance for Asia-Pacific markets at Citigroup Inc.

“There are pockets of proprietary money looking to be put to work in Asia,” Singapore-based Hill said in a June 12 interview. “There is going to be an outsized investment back into Asia. Some of the big pensions are going to be looking at Asia; it’s coming onto the radar screens.”

Asia-focused hedge funds gained 12.4 percent in the first five months of the year, outpacing returns in the U.S. and Europe, according to Eurekahedge Pte. That’s a reversal from last year, when clients withdrew almost $24 billion from the region’s hedge funds as managers posted bigger losses than global peers, the Singapore-based industry data provider reported.

“We don’t see money rushing back in yet, but there’s certainly a level of dialogue that’s picking up,” Hill said. “It’s both for existing managers with capacity and newer ones with solid business plans and institutional infrastructure.”

Investors are allocating small amounts in Asia and “getting their feet wet” in anticipation of a faster economic recovery in the region than in the West, said Alex Mearns, chief executive officer at Eurekahedge.

Economies in the Asia-Pacific region may expand 4.3 percent in 2010, compared with no growth in the U.S. and a contraction of 0.4 percent in the euro-area economy, according to the International Monetary Fund.

‘Potential Growth’

European and U.S. investors should allocate money to Asia “to capture potential growth not available in their home countries,” said Frank Brochin, managing director at New York- based StoneWater Capital LLC, which invests about $100 million in Asian hedge funds.

“It makes sense for them to invest in Asia through on-the- ground managers able to identify companies capable of delivering significant growth over long periods of time,” Brochin said.

The firm favors Asian managers that bet on rising as well as falling stocks, in particular those that have a majority of their bets on rising shares, he said.

An index tracking Asia-focused long-short funds rose 9.3 percent last month, the best performance of nine groups followed by Eurekahedge, after the strategy slumped 22 percent last year. About 180 funds closed in the region during last year’s global market rout.

“A solid market for stock picking is coming back,” said Citigroup’s Hill. “Many of the trading-oriented strategies continue to do well. There’s a lot of opportunity out there and it’s less crowded.”

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net