New hedge fund launches lag, hit 10-year lows
Asia accounts for 13% of the 604 new hedge fund launches globally this year, with the latest crop of emerging managers rolling out in a tougher fund-raising environment for start-ups, according to new Preqin research.
North America makes up the majority of new fund launches this year, accounting for 70%, with Europe second at 16%. The global total for 2013 is set to be the lowest number in a decade, following last year’s 966 launches and 1,067 in 2011.
In Asia, new regulations, such as the Alternative Investment Fund Managers Directive, Dodd-Frank and the Foreign Account Tax Compliance Act have likely also had an effect in the pace of new launches.
Additionally, a Singapore-based manager recently notes to AsianInvestor that the city-state’s regulator is applying stringent standards to prospective hedge funds. Some applications to the Monetary Authority of Singapore have been rejected due to operational staff or infrastructure that have been deemed as inadequate, says the manager.
The highly competitive fundraising environment is also a factor. Managers nowadays will build a trading track record prior to launch by running their own money, and is shown by the fact that only 44% of new hedge fund management firms set up this year have launched their first fund.
Competition for capital is expected to become more keen, even though smaller and newer hedge funds have been shown to perform better than their bigger and more established counterparts.
Fewer investors are interested in allocating to emerging managers, with only 38% of institutions polled by Preqin saying they would consider investing in first-time hedge funds, compared to 42% from last year.
Pensions – both public and private – were among the most resistant, with 60% saying they would not consider investing in an emerging manager. On the flip side, 64% of family offices indicate they are, or would consider, investing in emerging managers.
Managers of new funds based in Hong Kong, Singapore and Tokyo have told AsianInvestor that family offices – particularly in Europe – have shown the greatest interest in their strategies, along with Asian fund of hedge funds.
It meshes with Preqin findings that Asian institutions – which include FoHFs – are the most keen on emerging managers with 66% saying they are, or are considering, allocating to them.
An Asia seeding joint venture announced last month by Gottex Fund Management and Headland Strategic plans to make its first investment early next year.
Similarly, Australia’s QIC – which manages about A$70 billion ($64 billion) of investments on behalf of the state of Queensland – plans to invest A$500 million in macro hedge funds in Asia and globally in the next year, with both new and existing managers to be considered for investment.
It had only a 0.53% exposure to hedge funds as of end-June, according to its 2013 annual report.
QIC earlier this year wound down its Asia Pacific Market Neutral Fund – an internally-run quant strategy.