A Dozen Hedge Funds Plan Asia Offices, Merrill Says

Date: Monday, January 18, 2010
Author: Mary Linnane and Bei Hu, Bloomberg

Bank of America Merrill Lynch is helping more than a dozen multibillion dollar international hedge funds set up or reestablish a presence in Hong Kong and Singapore as the U.S. and Europe increase industry regulation.

A number of funds of hedge funds are also planning offices in the Asian cities, Dan McNicholas, head of Asia financing sales at Merrill Lynch said. McNicholas spoke in a Bloomberg Television interview without mentioning any names.

Hedge-fund managers have been tempted by Hong Kong’s regulatory environment, the region’s economic growth and potential investment opportunities as U.S. and Europe have proposed to increase taxes on the financial industry. London Mayor Boris Johnson said that as many as 9,000 bankers may leave the U.K. capital’s financial district as a result of a 50 percent tax on bonuses announced last month.

“When you compare to New York or London, the business environment has been very friendly for managers,” McNicholas said. In New York and London “you are seeing tax proposed and other restrictions on business that may make Hong Kong and Singapore attractive.”

Asia is also expected to absorb a larger proportion of global hedge fund inflows than it historically received as funds need to correct their under-allocations to the region, he said. More than 15 percent of the $50 billion to $100 billion of hedge fund inflows expected in the first quarter may go to Asia, McNicholas said.

Senior Staff

Soros Fund Management LLC and GLG Partners Inc. are among those planning a Hong Kong office, people familiar with their plans told Bloomberg last week.

“Unlike 2006, when we often just saw junior research staff and execution traders coming to Asia, we’re seeing more senior staff choose to make the move,” said McNicholas.

The U.K. last month imposed a 50 percent tax on banks for bonuses of more than 25,000 pounds ($40,714). It is also raising taxes on residents earning more than 150,000 pounds a year to 50 percent from 40 percent.

In 2008, it introduced a fee of 30,000 pounds for non- domiciled residents who had previously escaped its tax system.

The European Union is preparing rules for hedge funds that would restrict the amount they can borrow and force them to use banks domiciled in Europe.

In the U.S., President Barack Obama proposed raising taxes on fund executives in his first budget last year. An increase would affect general partners at buyout firms, hedge funds, venture capital firms and other partnerships including real estate, oil and gas investments.

Outperformance

Asian equities outperformed the U.S. in 2009, with the MSCI Asia Pacific Ex-Japan Index advancing 68 percent last year compared with the Standard & Poor’s 500 Index’s 23 percent gain.

Asia is leading the world’s emergence from its deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates. China, South Korea, Taiwan, Hong Kong and 10 Southeast Asian economies may expand 6.8 percent in 2010 from 4.2 percent last year, according to a report last month by the Asian Development Bank’s Office for Regional Economic Integration in Manila.

Emerging markets will become a leading source of investment and credit as Western economies take longer to recover from the financial crisis, Tony Tan, deputy chairman of Government of Singapore Investment Corp., said today at the Commonwealth Economic Forum in Taipei. GIC manages more than $100 billion of the city-state’s foreign reserves.

Hong Kong

Most of the clients seeking help for a regional office have chosen Hong Kong, said McNicholas.

Hong Kong’s Securities and Futures Commission licensed 231 hedge fund managers by the end of March, 40 percent of them international, according to a survey released by the regulator in September.

The city had $55.3 billion of hedge fund assets. U.S. and European investors constituted 84 percent of the investor base of hedge fund assets in the city, said the survey.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from speculating on whether the price of assets rise or fall.

To contact the reporter on this story: Mary Linnane in Hong Kong at +852-2977-2136 or Mlinnane2@bloomberg.net Bei Hu in Hong Kong at +852-2977-6633 or bhu5@bloomberg.net.