HK hedge-fund assets hit $63.2 billion as larger firms take root

Mar 13, 2011

Big-ticket funds are on the rise in the territory as the number of smaller firms shrinks, according to the Securities and Futures Commission.

Hong Kong’s hedge-fund assets grew to $63.2 billion last year, a rise of nearly 15% from the $55.3 billion under management in 2009, as larger funds took hold in the city, according to an annual survey by the Securities and Futures Commission.

While the actual number of funds fell slightly to 538 as of September 2010, down from 542 the previous year, the proportion of managers running strategies with assets between $101 million and $500 million grew to 29.5%, up from 25.7% in 2009. At the same time, managers who oversee less than $100 million represented 57.4% of the total in 2010, down from 60.7% the year before.

The shift indicates that Hong Kong’s hedge-fund industry is breaking out of its mould as a centre for strategies managing $20 million to $30 million. Still, at the other end of the scale, the proportion of large hedge funds running $501 million to $1 billion and over $1 billion remained fairly static at 7.2% and 5.9%, respectively.

The top 50 firms in the city accounted for 78% of the industry’s assets, while two of the top 10 managers were funds of funds, says the regulator.

The inflows are dominated by overseas investors from the Americas (36.1%) and Europe (24.3%), with Hong Kong accounting for only 7.9%.

In terms of investor class, funds of hedge funds were the biggest allocators, accounting for 24.5% of assets, followed by high-net-worth individuals and family offices which jointly account for 19%. A close third were banks, insurance companies and other financial institutions, with a collective 18.3%.

Multi-strategy funds were the most popular among investors, garnering 34% of assets under management, a similar proportion as in 2009, while long/short strategies rose to 31%, up from 25% the previous year. As a result of the high number of long/short funds, equities accounted for the biggest asset-class exposure, while sovereign bonds and credit instruments were also prominent in hedge-fund portfolios.

Asia-Pacific-focused hedge funds represent 66% of total AUM, a rise from 59% in 2009, which the SFC credited to greater allocations to strategies targeting Japan and other countries in the region outside Greater China.