Summit News

Jobless bankers may lift Asian hedge fund numbers

SINGAPORE (Reuters) - The number of Asian hedge funds could increase by 10 percent this year as more unemployed bankers and traders launch new funds and the cost of doing business slumps, an industry expert said on Monday.

Peter Douglas, founder of hedge fund consultancy GFIA, speaks during the Reuters Private Equity and Hedge Funds Summit in Singapore, March 23, 2009. REUTERS/Vivek Prakash

“It’s much better to be a small hedge fund manager than an unemployed investment banker,” Peter Douglas, founder of hedge fund consultancy GFIA told the Reuters Private Equity and Hedge Funds Summit in Singapore.

“We are beginning to see quite a strong wave of managers’ formation, which is entirely consistent with what we saw after the Asian crisis.”

He said these bankers could add to around 700 hedge funds already based in Asia, as battered global banks shed staff who have strong relationships with potential investors, cash from bonuses, and friends to start off small funds.

Assets under management in Asia could remain little changed, from an industry estimate of $100-$150 billion last year, he said.

The Asian hedge fund industry saw huge redemptions last year as only a quarter of 1,150 Asia-focused hedge funds made money in 2008 compared with around 40 percent of global hedge funds, data from Eurekahedge showed.

Chicago-based Hedge Fund Research said its HFRI Emerging Markets Asia ex-Japan Index dropped 33.5 percent last year, reflecting the poor performance of funds in Asia, underperforming the 19 percent drop in its main global HFRI fund weighted composite index.

The MSCI ex-Japan index dropped 53 percent last year.

“You have clearly huge dislocation in markets. Experienced investment people look at these markets and say if I can’t make 20-25 percent per annum over the next two or three years, I never will,” said Douglas, who previously was a director for Aberdeen Asset Management Asia before striking out on his own.

“You want to start a new fund here, your rent has not only decreased a bit, but it has gone to zero because your best mate has spare desks.”


But Douglas said some of the Asian hedge funds had become so large that it made it difficult for them to take advantage of limited opportunities to short stocks in Asia.

“If you are running a long/short fund right now, $100 million or $200 million, your shorting universe is fairly healthy,” he said. “It’s been quite difficult to allocate to long/short equity in Asia because managers who you want to allocate too are typically running, in our opinion, too much money.”

Long/short strategy was among the worst-performing strategy in hedge funds globally last year, losing more than a quarter on average, according to data from Lipper, a unit of Thomson Reuters.

Douglas said he believes long/short strategy will garner strong returns for investors this year in Asia because of inefficient markets.

“Long/short is an interesting place to be...everything is mispriced.”

Douglas said “unhelpful regulation” such as restrictions on short-selling, commercial viability, and potential fraud were the biggest risks facing the industry, though he did not see a Madoff-sized scandal in the region nor overly onerous regulation.

“Politicians need to produce something. There needs to be a headline -- hedge funds regulated,” he said. “Politically hedge funds are a useful football.”

Editing by Muralikumar Anantharaman