Lull in Asia hedge launches to end soon
HONG KONG (Reuters) - Asia's hedge fund managers are poised to launch a flurry of new funds after a temporary lull during the financial market selloff in the second quarter, two partners with law firm Walkers said.
The Cayman Islands-based firm provides legal advice for hedge fund managers looking to register in offshore jurisdictions.
"We did see a drop-off because of the May-June sell-down. Whether an individual manager performed well or badly during that period, in some senses, could be irrelevant to the launch of new funds," Philip Millward, a partner with the firm's Hong Kong office, said at the Reuters Wealth Management Summit late Tuesday.
"Three or four months have expired since that sell-down and investor sentiment seems to be picking up again, and you'll see the launch of more hedge funds toward the end of the year."
Global stock markets hit multi-year peaks in May, then fell sharply, with the MSCI world index .MSCIWD at one point losing as much as 11 percent.
The law firm, which has offices in the British Virgin Islands, Dubai, Hong Kong, Jersey and London, expects minimal regulatory fallout in Asia from the unraveling of Amaranth Advisors LLC, a Greenwich, Connecticut-based hedge fund manager. Amaranth suffered a $6 billion loss last month in wrong-way bets on natural gas derivatives.
"It's clear that when there are blowups, as indeed there will be from time to time, there always is the hue and cry for greater regulation, as opposed to leaving things as they are and letting managers, counterparties and investors regulate themselves," said Carol Hall, another Walkers partner.
"We can expect to see ripples in Asia and around the world. Most probably we'll see best practice as opposed to greater regulation."
The two lawyers, who specialize in establishing hedge and private equity funds in the Cayman Islands and British Virgin Islands, said they saw no indications Asian hedge fund managers were willing to lower their fees to attract capital.
Hedge funds typically change annual management fees of 1 to 5 percent and take 20 percent of profits.
"Across the board in terms of the documentation, we're not seeing significant fee decreases," Hall said.
Hedge funds are lightly regulated investment vehicles that aim to make money in all markets using techniques such as shorting and leverage, which are off-limits to traditional "long-only" managers.
But a large proportion of Asian hedge fund managers use long-short equity strategies that are more likely to follow the direction of stock markets because many managers are biased toward long positions, Hall said.
Data from research firm Eurekahedge showed equity long/short funds made up 85 percent of Japanese hedge fund assets, compared with just 27 percent of hedge fund assets in the United States and 38 percent in Europe.
"Even though there's talk of moving to different strategies such as macro funds, commodity trading pools and multi-strategy arbitrage funds, basically there is a predominance of long-short strategies," she said.
"Of course with that in mind, you can see that the volatility in the markets would clearly have an impact."
