HONG KONG Two top executives of Millennium Management LLC are preparing to start a $1.4 billion hedge fund in Asia, people familiar with the matter told Reuters, in what would be the region's largest such fund launch.
The Millennium spin-out could add a spark to Asia's hedge fund industry, which has suffered from poor returns and lack of capital flows in the past few years amid volatile and sinking markets across the region.
"It is encouraging to see such a high quality spin-out - a clear sign that the Asian hedge fund industry is still vibrant," said Will Tan, a managing director at Principle Partners, a Singapore-based recruitment firm.
"In the last 18 months, we have seen a number of notable Asian spin-outs from established U.S. and European hedge funds and many of them are doing well."
The hedge fund will be based in Hong Kong and be named Symmetry Investment Management, the people said, and will be led by Millennium portfolio manager Feng Guo and the firm's Asian regional manager, Michael Robinson. The firm plans to open for business in the first quarter of 2014, the people said, after receiving licenses and setting up its office.
Guo and Robinson will likely get as much as $1.2 billion from Millennium and another $200 million from external investors. The launch will break the record set by former Goldman Sachs (GS.N) trader Morgan Sze, who started Azentus Capital in 2011 with $1 billion.
A New York-based spokeswoman for Millennium declined to comment. Guo did not immediately reply to an email request for comment. The people did not want to be named because the launch has yet to be officially announced.
The hedge fund will invest in bonds and other fixed-income instruments, as well as rates. The fund, which will invest in both Asia and other markets across the globe, will follow the relative value strategy, which seeks to exploit price discrepancies between different securities by entering into simultaneous long and short positions.
Millennium, founded in 1989 with $35 million by Israel Englander, manages $18.6 billion. The firm relies on a group approach where dozens of smaller portfolio teams, rather than one or two main managers, buy and sell securities quickly, often thousands of them at a time.
Spin-outs, common in the industry, involve large hedge funds backing their own managers who want to set up their own firms. Large funds like Millennium often invest in their own successful managers who leave, to continue to benefit from their expertise and talent.
Since 2012 in Asia, at least two high profile start-ups - one by Andrew McMillan of Tudor Investment Corp and the other by the former Asia head of Lone Pine Capital, Eashwar Krishnan - have received money from their previous hedge fund employers to start their own firms.
The launch comes as a morale booster for the industry where service providers such as prime brokers and fund administrators have faced muted activity.
Overall, the number of new fund launches in Asia in the first half of 2013 fell to 51 from 71 during the same period last year, making it the worst period for start-ups since 2009, according to data from industry tracker Eurekahedge.
While the global hedge fund industry has recovered from the impact of the 2008 financial crisis, Asian hedge funds' assets are still about $35 billion below the peak level hit in January 2008, Eurekahedge data showed.
(Reporting by Nishant Kumar; Editing by Michael Flaherty and Chris Gallagher)