Asia Hedge Funds Struggle for Assets as Investors Remain Wary After Crisis

Date: Thursday, May 6, 2010
Author: Bloomberg

Asian hedge fund managers, especially startups and those overseeing smaller amounts, are finding it tough to raise money as investors remain wary of the industry after the financial crisis, consultants and asset managers said.

The average size of a fund launched last year fell to $40 million, half the amount in 2007, according to Singapore-based Peter Douglas, the principal of GFIA Pte, which advises investors seeking to allocate money to hedge funds and runs a wealth management business. About 70 percent of the funds launched in the past two years had $50 million or less as of the end of March, he said at the Bloomberg Alternative Investment Forum in Singapore yesterday.

“The seeders have the upper hand these days,” said Albert Ee, founder of Singapore-based Pilgrim Partners Asia Pte, which started a macro hedge fund this week. “I had to go to family and friends. The dynamics are different now; relationships are getting more important.”

Asian hedge funds had net redemptions in the three months to March, snapping two straight quarterly inflows, as investors such as family offices became less inclined to back new funds.

“There’s an absolute sclerosis of allocation to smaller and newer managers,” Douglas said.

Global hedge-fund investors pulled their research teams out of the region during the crisis in 2008 and 2009, leaving Asia with “less decision-making capacity,” he said.

Redemptions

“In Asia, the problem is compounded because it’s too far away from the big pools of allocators,” Douglas added. “It’s tougher for Asian hedge funds to raise capital.”

Asia’s hedge-fund industry had net redemptions of about $700 million in the first quarter because of “continued concerns about strategic and regulatory risks,” Hedge Fund Research Inc. said in a report dated May 4. The global industry attracted inflows of $13.7 billion, according to the Chicago- based firm.

A performance-based increase of $1.5 billion offset investor withdrawals as Asian hedge funds continued to outperform equity benchmarks, resulting in an increase in assets invested in the funds to more than $77 billion, according to HFR.

Investors are performing “more intensive due diligence” following Bernard Madoff’s $65 billion fraud, even with more established managers, Douglas said.

Family Offices

“There’s a massive premium on liquidity, track record and scale,” said Michael Coleman, managing director of Singapore- based Aisling Analytics Pte, which manages the $1.6 billion Merchant Commodity Fund. “A big part of the seeding world was European family offices and they’re probably the most traumatized group of investors.”

Aisling Analytics is seeking to raise $300 million for an equity long-short fund investing in commodities and natural resources companies.

“It has not gotten noticeably better since the depths of the crisis,” Coleman said. “It’s a really tough environment.”

Hedge-fund managers are turning to Asian investors, including wealthy individuals and companies in Korea and Taiwan, for money, Ee said.

Pilgrim Partners manages about $28 million, of which half are assets in the macro hedge fund and the remainder are managed accounts for institutions, Ee said.

“There’s a subtle change in the kind of investors in your fund,” he said. “Asians are beginning to invest in hedge funds.”