Deutsche Bank to Add Staff Targeting New Hedge Funds in Asia

Date: Monday, March 29, 2010
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Deutsche Bank AG’s prime brokerage will hire more staff in Asia as it aims to lure business from hedge-fund startups in the region leading the global economic recovery, said Sean Capstick, head of capital introduction.

Frankfurt-based Deutsche Bank has boosted its pan-Asian prime finance staff by about 20 percent over the last 18 months, said Capstick, declining to give details. The increasing number of startup funds in Asia will be key for growth at the division, which provides services to hedge funds, he said.

“Within the global prime finance world, Asia is a big focus,” London-based Capstick said in an interview in Tokyo on March 25. “We’ve been very involved in the startup markets and that is something we absolutely plan to continue doing.”

The industry may attract $222 billion of capital this year, according to a Deutsche Bank survey of investors this month, marking the first annual net inflow since the global financial crisis hit in 2007. Citigroup Inc. plans to double the size of a team helping pension and government-backed funds manage direct hedge fund investments.

In the past 18 months in the Asia-Pacific, Deutsche Bank hired Merrill Lynch & Co.’s Masa Yanagisawa as a director for the hedge fund capital group in Tokyo. Harvey Twomey, Hong Kong- based head of prime finance institutional client group, also joined from Merrill Lynch, said Capstick.

Taking Market Share

Deutsche Bank has captured an increasing number of clients in the wake of the collapse of Lehman Brothers Holdings Inc. in September 2008 and Bear Stearns Cos.’s hedge funds in 2007 as investors sought businesses with European banks that had more stable balance sheets, Capstick said.

The bank increased its market share among prime brokers to 8.2 percent at the end of 2009, ranking fifth, from 5.9 percent the end of 2007, according to Eurekahedge Pte. Top-ranked Goldman Sachs Group Inc. dropped to 17.7 percent from 18.5 percent, while second-place Morgan Stanley dropped to 16.3 percent from 20 percent.

Analysts and managers left major financial institutions or global hedge funds and started their own firms last year to capitalize on investment opportunities in the wake of the worst market rout since the Great Depression. There were 102 hedge- fund startups in Asia in 2009, compared with 193 in Europe and 257 in the U.S., according to Eurekahedge, a Singapore-based data provider.

Outperforming

Investors are coming to Asia as the region’s economic growth helps boost performances among managers. The Eurekahedge Asian Hedge Fund Index returned 26 percent in 2009, beating the 20 percent gain by the global index.

Emerging Asia is expected to grow at more than twice the pace of the global economy this year, led by China and India, International Monetary Fund official John Lipsky said earlier this month. Asia’s economy will expand by about 8.5 percent in 2010, Lipsky said, while the world economy is forecast to grow by about 4 percent this year.

Forty-five percent of investors in Deutsche Bank’s survey said they would add investments in funds focusing on Asia outside of Japan this year, contrasting with 18 percent in 2009. For Japan, 24 percent of investors plan to add to their Japanese allocations this year, compared with 15 percent in 2009.

“People are coming here looking for very good investment ideas and that now is translating directly through the startup market,” Capstick said. “We spend a very large amount of time meeting with people who are starting up hedge funds. Our role is to find which ones are going to flourish.”

The eighth Deutsche Bank alternative investment survey polled asset managers, corporations, family offices, foundations and endowments, funds of funds, insurers, private banks, pension funds and investment consultants with more than $1.07 trillion of hedge fund assets in January.

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

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net