Hedge funds eye Asian growth as Bolton heads east

Date: Friday, November 27, 2009
Author: Laurence Fletcher, Reuters

Fidelity's Anthony Bolton is unlikely to be the last top UK investor to move to Asia as hedge funds eye up attractive investment opportunities and cash-rich clients hungry for absolute returns.

While not strictly a hedge fund manager, Bolton made his name as shrewd manager of Fidelity's top-performing Special Situations fund, and on Thursday the firm said he will return to managing money by running a new China investment portfolio out of Hong Kong.

He is one of a growing army of fund professionals to show interest in the region.

TCI has decided to close up shop after some high profile failures in its activist strategy, but fellow hedge fund firms Four Elements and Orchard Capital Partners, launched by former managers at Stark Investments, are among new firms in the region.

Davide Erro -- a former manager of the Hong-Kong and London-based Gandhara hedge fund forced to shut up shop earlier this year -- plans to launch a stock fund next year from his Hong Kong base, according to the Wall Street Journal.

Marshall Wace has also opened an office in the region in recent years.

"We are seeing a lot of high-quality managers launch in Asia," said one prime brokerage executive who declined to be named.

Hedge fund industry executives say managers are attracted by the region's large variety of investment markets with different characteristics, including Australia, Japan and China.

Meanwhile, firms are also drawn by strong outperformance from the region -- the MSCI AC Asia excluding Japan index has jumped 66 percent this year, more than double the 32 percent gain from global equities.

"There are a lot of launches of Asia-focused funds located in Asia -- there have been around 50 funds," said Eddie Guillemette, managing director in Bank of America Merrill Lynch's prime brokerage business.

"The performance of emerging markets has encouraged people. The bet is that Asia will be the place to be in the next two-to-five years."

"EVEN MORE ATTRACTIVE"

Many are, like Bolton, choosing to move to Asia to be close to what they see as a growing investment opportunity, especially compared with heavily indebted Western economies.

"It's not the end of the world for the UK but western governments have effectively mortgaged the future, so faster growth in an economy like China will look even more attractive," Bolton told a media briefing in Hong Kong.

Meanwhile, tax rates on top earners of 17 percent in Hong Kong and 20 percent in Singapore compare favourably with the UK, especially given a controversial plan to raise the highest British rate to 50 percent from 40 percent.

Start-up costs are also generally lower than in London's expensive West End -- Europe's hedge hub -- and boutique funds can therefore get going with smaller asset bases than the $50 million or $100 million that many in the UK see as a critical mass.

"Asian funds can launch with smaller AUMs than in Europe and often start without large external investors," said Mark Bailey, Bank of America Merrill Lynch's head of global markets financing and futures, EMEA.

Many hedge funds, meanwhile, see growing wealth in Asia and a strong savings culture as a way to replenish asset levels that have fallen, often sharply, during the credit crisis.

Earlier this month Man Group (EMG.L), the world's biggest listed hedge fund firm, picked out sales to private investors in Asia as a "bright spot" for the group.

"Asia, we expect, will remain critical to Man's private client fund raising capability," said Morgan Stanley analysts in a note this month. Absolute return fund sales to Asia private clients are "a material opportunity" for the industry, they added.

Independent wealth management consultant Bruce Weatherill said the shorter-term outlook many hedge funds adopt was attractive to return-seeking Asia clients.

"They want to go for opportunities which are a search for pure alpha and hedge funds play very heavily into that area."