Asia hedge fund startups slow

Added on 01/09/2015

Hedge fund launches in Asia are on track to decline for the third straight year as equity-market volatility prompted investors in the region to pare risk, reports Bloomberg.

Forty-one new hedge funds opened in Asia in the first half of 2015, compared with 55 for the same period in 2014, according to Singapore-based data provider Eurekahedge Pte. Last year, the number of new hedge funds dropped to 117, from 149 launches in 2013 and 180 in 2012, Eurekahedge data show.

Investors had been pulling back from riskier assets even before a market rout started in June, when concerns about China’s slowing growth and the prospect of rising interest rates in the US sent stocks and commodities tumbling. Several factors have combined to slow hedge fund startups, including the macro risk environment and the availability of skilled managers, according to Peter Ryan-Kane, managing director and head of portfolio advisory Asia Pacific at consulting firm Towers Watson.

“We are years and years away from the last downturn, perhaps on the brink of the next, so the demand factors will be weaker,” Ryan-Kane said. “Also the shakeout in banking and asset management has abated somewhat for now, so there may be fewer traders and the like looking to set up shop.”

BlackRock, Fortress

Among the biggest hedge funds that opened this year were Zentific Investment Management, the market-neutral strategy led by former BlackRock Inc. employee Christopher Lee, and Graticule Asia Macro Advisors, a spin-out of Fortress Investment Group LLC overseen by Adam Levinson. Funds in the pipeline include Zaaba Capital, Mohan Rajasooria’s firm which will open with at least US$250 million by year-end.

Redemptions and closures may increase in the coming months, after many hedge funds have performed poorly, according to Mohammad Hassan, a senior analyst at Eurekahedge. The Eurekahedge Asian Hedge Fund Index fell 1.6 per cent in June and was down 2.5 per cent in July. August’s losses are estimated at 3.5 per cent, Hassan said. Greater China hedge funds fell 8.4 per cent in July and are forecast to drop at least 10 per cent in August, Eurekahedge data show. The Shanghai Composite Index declined 12.5 per cent in August, after tumbling 14 per cent in July.

“Generally our analysis shows that if you have three consecutive months of losses, investor redemptions will go up,” Hassan said.

Also contributing to a slower pace of new hedge fund openings are rising regulatory costs and operational expenses, according to Hassan. Rising costs have encouraged hedge funds to run their strategies on platforms such as Swiss-Asia Holding Pte and Gordian Capital Singapore Pte, which handle the operational aspects of running a fund, as opposed to starting a stand-alone firm, Hassan said.