Asian Hedge-Fund Assets to Double on New Money

Date: Wednesday, October 7, 2009
Author: Netty Ismail, Bloomberg

Asian hedge funds will attract a “wave” of new money that could more than double the industry’s assets from its peak of $250 billion as the region leads the world’s emergence from the deepest recession since World War II, according to GFIA Pte.

The industry in Asia will grow to two-to-three times its peak within the next five years as investors outside the region with little or no investments in Asian alternative strategies allocate to the funds, said Peter Douglas, principal of GFIA, a Singapore-based hedge-fund consulting firm. The industry has shrunk by about 30 percent from the peak reached in the first half of 2008 following client withdrawals, he said.

“The underlying fundamentals of Asia appear relatively strong currently, compared with the U.S. and developed Europe, and the consensus is that Asia’s long-term growth advantage will lead to Asia increasingly becoming the engine of the world’s growth,” Douglas said in an interview yesterday. “Investors want a part of this.”

Asia-focused hedge funds jumped about 20 percent this year, beating the average 19 percent gain reported by U.S. and European hedge funds, according to Singapore-based data provider Eurekahedge Pte. The Washington-based International Monetary Fund predicts gross domestic product in developing Asia will expand at more than twice the pace of advanced economies next year.

Investors including Brazilian private banks, U.S. family offices and European institutional advisers are seeking to allocate money to Asian hedge funds, Douglas said.

‘Strategic Wave’

“The main strategic wave will hit at the end of this year or the first half of 2010,” he said.

Asian hedge funds account for about 10 percent of the global industry, trailing the region’s capital markets, which represent 25 percent of markets worldwide, Douglas said.

“Ultimately those numbers should be approximately equal and hence there’s potential for significant catch-up,” he said.

Pacific Alternative Asset Management Co., which manages about $9 billion including investments for U.S. pension funds, plans to allocate more money to Asian hedge funds, said Managing Director Judith Posnikoff. The Irvine, California-based firm has been increasing its investments in Asian-focused strategies over the last few years to about 7 percent to 10 percent of its hedge-fund holdings, she said.

“There are considerable opportunities in Asia,” Posnikoff said. “Locally based managers are best positioned to capture those opportunities.”

Riley Paterson

There have already been some inflows into the industry, Douglas said.

Assets of the Riley Paterson Asian Opportunities Fund, managed by Singapore-based Riley Paterson Investment Management Pte, increased more than fourfold to about $113 million as of Aug. 31, from $25 million in January, according to data compiled by Bloomberg. The fund gained about 18 percent in the first eight months of the year, after posting the second-highest return in 2008 among equity-oriented long-short funds that focus on Asia outside Japan.

The proportion of Asian investments in the region’s hedge funds has also increased, Douglas said. Almost half of the assets of Singapore-based hedge-fund managers were sourced from Asian investors, he said. The Asian industry’s assets had “historically been sourced overwhelmingly from outside the region,” he said.

“It’s a very welcome development as it suggests a more stable investor base that may not be so panicked by Asian market cyclicality,” Douglas said.

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