ANALYSIS: Mortality rate of Asian hedge funds

Date: Thursday, April 8, 2010
Author: Albourne Village

GFIA pte ltd, the Singapore based specialist in skill-based managers in Asian and emerging markets, has released a research paper on Asian hedge fund closures from 2008 to 2009.

Fund closures are an integral part of any hedge fund universe, and in any given year, GFIA expects 8-12% of any specific universe of funds to close, merge, or liquidate. As fund closures picked up during the onset of the credit crisis, the paper discussed the impact of global happenings on fund closures, and the type of hedge fund strategy that was most affected. Some findings include:

•2008 saw 129 Asian hedge fund closures, a figure double that of 2007 •In 2008, 19% of funds closed down, the highest proportion ever; in 2009 this fell to 12%, closer to the long-run average of 9% •Almost 80% of funds which closed the over past 9 years were equity long/short funds •Funds that closed in 2008 had underperformed significantly against their benchmark, the Asiahedge Composite Index, in the same year. However, funds that closed in 2009 generally only underperformed in that year, despite surviving 2008.

Peter Douglas CAIA, FICP, principal of GFIA, commented: “Although the Asian hedge fund industry has seen few, if any, real disasters, the environment of the last two years has been very tough in particular for smaller funds. Investors have been less willing to ride out weak performance against a backdrop of uncertainty. Small asset sizes and lack of performance fees have made many funds difficult to justify as businesses, and managers have taken commercial decisions to close down unprofitable funds.”

The white paper is available on request from GFIA, or at www.gfia.com.sg