The “stars” of recent years that have lodged standout gains will continue to see moderate inflows from their traditional investors – US institutions – while new entrants are turning to ultra-high net worth investors, family offices and their own friends amid a dearth of institutional seed capital.
Commenting on the issues in the continued evolution of Asia’s hedge funds market, Aidan Houlihan, managing director for BNY Mellon’s alternative investment services says: “From my vantage point here in Hong Kong, I believe the gathering trend for 2013 is the continued gradual evolution of Asia’s hedge fund community. Although we expect fewer fund launches over the next 12 months, we do anticipate that the new crop will be more diverse in its range of investment strategies. This will support Asia’s gradual shifting away from a monolithic emphasis on equity long-short strategies. Already,more esoteric credit and macro-oriented strategies as well as multi-strategy funds have entered the market. Today, equity long-short funds account for roughly 75% of hedge fund assets under management, down from 90% just a few years ago.
“We believe the hedge fund industry in Asia will continue to grow and evolve and provide investors with more options. Whilst it is certainly true that we expect to see fewer launches in 2013, we believe the quality of the funds coming to market and level of assets under management they will raise on launch date will continue to increase.
“In my opinion, one of the main headwinds for the average hedge fund in Asia in the year ahead will continue to be raising capital. The new capital coming into Asia will largely be limited to outliers that have significantly outperformed both peers and the broader market. These fund managers have consistently been rewarded with capital inflows, and investor interest in them remains high.
“Seeding arrangements for early stage hedge funds in Asia have become harder to secure. The spate of high profile launches in the first half of 2012 ultimately proved short-lived. Many, however, have found success tapping less conventional capital raising channels such as family offices, ultra-high net worth individuals and personal friends. Smaller funds have also adapted by becoming creative in their investor targeting. And renewed interest in hedge funds in general should trickle down to the start-up space, both globally and in Asia. He added.
A tricky issue for funds in Asia is the over reliance on US investment, with 80% of funds currently being raised for Asian products coming from American investment, the majority of the remaining 20% is from European sources, leaving a small amount from regional sources.
Mr Houlihan says : “I believe Asian hedge funds need to try and cultivate a deeper base of investors in their home markets. The majority are overly reliant on foreign capital, which is a trend we expect to continue into 2013.
“The formula for diversifying their shareholder base may be quite simple: better performance. The challenge for the hedge fund industry overall will be maintaining – and in some cases re-establishing – its reputation as an asset class that can outperform the broader market and provide uncorrelated returns. The last couple of years have challenged that reputation. But if hedge funds regain their footing this year, we expect fundraising to improve apace, and Asian fund managers should definitely participate in that trend.”