The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Private equity and direct investments represent the main growth in OaksÆ portfolio, which is now 40% in equities and equity-related allocations and 40% in interest-rate plays and fixed-income hedge funds.
Ajia Partners, which manages money on behalf of several families from North Asia, is looking to seed more start-up hedge funds in Asia, says Paul Heffner, partner.
The executives spoke about family officesÆ requirements regarding hedge funds yesterday at the GaimAsia conference held at the JW Marriott in Hong Kong.
Hoyes says Oaks first gained exposure to Asia strategies via established hedge funds in the West. ôWe realised the way to go is with managers out here, given their local contacts and knowledge, versus someone in London relying on traditional research. ThereÆs nothing wrong with fundamental investing, but returns in Asia can often be driven by other issues.ö
Oaks is therefore looking for more regionally based managers. He says the firm still maintains one hedge fund manager located in London but which maintains a presence in Tokyo. Hoyes says this managerÆs performance hasnÆt been that great lately and is under scrutiny.
Ajia Partners is now also looking to seed new hedge funds in the region. ôThere are now managers spinning off from established hedge funds with three or five years of experience,ö Heffner says. ôThey understand the business, how to structure compensation, how to articulate an investment position. We can be their first institutional capital, and we find these guys are transparent and welcome in our risk teams, especially in Japan.ö
Oaks, meanwhile, prefers to rely on sourcing managers via established platforms that provide marketing, back office functions and risk management, allowing fund managers to concentrate on running portfolios. Working off a single platform reduces the family officeÆs due diligence work and strengthens the independence of compliance.
ôWe donÆt mind so much losing money on a trading strategy,ö Hoyes says. ôFraud, however, is hard to detect and even harder to live with. Platforms reduce the likelihood of such incidents. We donÆt need anything unique or different from a platform, we just want to be sure the basics are covered.ö
Although family offices are interested in diversifying their managers by style and strategy, Asia remains limited outside of equity long/short.
The blurring lines between hedge funds and private equity is attractive but often difficult to structure, says AjiaÆs Heffner. Families donÆt want to be left with a side-pocket structure in which they get stuck with shares in a company that canÆt be valuated or sold. Instead of offering families fancy structures like side pockets, convergence players are better off simply insisting on a lock-up of three-to-five years.
He says these complicated structures, in which parts of a portfolio can be marked to market while others cannot, create too many headaches, but are becoming more common. ôIÆve seen a lot of these in Japan,ö Heffner says. ôWe had to redeem from most of these managers.ö
Hoyes says Oaks will stick to long/short managers and event-driven managers because there is sufficient expertise and variety in Asia. But strategies such as macro remain unappealing as long as the regionÆs capital markets remain underdeveloped. One area he is optimistic can develop is activist strategies, given the Asian-born talent from the US and Europe that is now returning to Japan and other markets to pursue these.
But Heffner says that activist strategies must be bold to offer any meaningful returns. ôFriendly activism doesnÆt work,ö he argues. ôManagers need to cross the line and show a willingness and ability to force managements to change. If you invest in these so-called friendly activists, youÆll end up disappointed.ö
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