Asia-focused hedge funds seen starting to attract inflows

Date: Monday, November 29, 2010
Author: Kevin Lim, Reuters

Hedge funds investing in developing Asia have begun to attract money from investors after a poor first half of 2010 when many were hurt by outflows despite strong interest in emerging markets, industry players said.

Global investors have been pouring money into Asia in search of higher returns since the start of the year, pushing up currencies and fuelling concerns about asset bubbles. But they took out about $1.6 billion from Asia ex-Japan themed hedge funds between January and July, according to data from Eurekahedge.

The trend has since reversed, with Asia ex-Japan focused funds receiving around $250 million net inflows in both August and September, said Eurekahedge, a Singapore-based fund tracker. And preliminary data showed Asia ex-Japan focused funds had inflows of just under $1 billion in October, Eurekahedge analyst Farhan Mumtaz said.

"In the first half of the year, there were still net outflows from Asian funds. But in the past few months, we have started to see some inflows," said Wout Kalis, Citigroup's (C.N) head of alternative investments for the Asia Pacific.

"We are seeing some traction though the inflows are not the same as what you see in the U.S. and Europe," said Kalis, whose unit provides services to the region's hedge fund industry.

Large, global hedge fund managers with Asian-themed funds and staff in the region have been more successful in attracting money than Asian managers, he added.

SKEWED NUMBERS

Asia-themed hedge funds gained an average of 1.99 percent in October and are up 5.79 percent since the start of the year, following a 26.59 percent return in 2009, according to Eurekahedge.

Several industry players said the hedge fund industry in Asia was probably healthier than available data suggested, as several of the larger and more successful hedge funds did not participate in industry surveys, hence skewing the figures about inflows.

The industry is also set to grow further in Asia, as more global players set up operations in either Singapore or Hong Kong to trade Asian assets and curbs on proprietary trading by banks force traders to strike out on their own.

"I would challenge the view that there is money flowing out of the region, from Asian hedge funds... If you talk to the eight, nine or so largest prime brokers, the balances have gone up significantly," said Christophe Lee, chairman of hedge fund industry body, the Alternative Investment Management Association's (AIMA) Hong Kong chapter.

"Prime brokers are probably the best gatekeepers. They know exactly what's going on because they keep the balances of the hedge funds," he added.

The Singapore head of a European fund administration firm said that while smaller players have difficulty raising funds as investors shun firms without long track records, the larger players have been successful in attracting new money.

Around 15 percent of managers controlled about 60 percent of Asian hedge fund assets under management and "it is their numbers that really determine the overall number," said the executive, who declined to be identified as talking to the media was against company policy.