Firebrick Asia Fund and Progress Capital Fund, both long/short equity strategies which were run out of Singapore by experienced managers, have recently wound up – a sign of the challenging operating environment for hedge funds in the region.
Firebrick, which was launched in mid-2011 by Toru Ueda – who co-founded Japanese hedge fund Hachiman Capital and was previously the chief executive of Prudential Portfolio Managers Japan – is understood to have encountered fundraising difficulties.
Meanwhile, Progress, which launched with $50 million in 2007, was managed by Vikas Gattani, the former chief investment officer of Asia Capital Management, a proprietary trading unit of JP Morgan.
When contacted, Ueda and Gattani confirmed the closure of their funds but declined to provide further comment.
Higher operating costs and a shift in investor money to the best-performing hedge funds will likely add to the attrition rate in the sector in Asia this year, with no exception spared to strategies run by seasoned managers.
According to one Asia-based fund-of-hedge-fund executive, strategies helmed by so-called 'star' managers – those who earned their reputation at global firms – have generally not been among the region's best-performing funds over the past several years.
Increased operational costs and difficulties in generating returns amid volatile Asian markets have led to a rash of hedge fund closures in the past six months. They include Asia-focused strategies by large overseas fund managers, such as Henderson Global Investors and Wessex Asset Management of the UK, and also firms based in the region, including Clairvoyance Capital and Pangu Capital.
So far this year, there have been 36 hedge fund closures in Asia, as against 35 strategies that have been launched, says Farhan Mumtaz, senior analyst at data provider Eurekahedge.
The sector in Singapore faces additional challenges in the form of stricter regulations that are expected to raise the cost of running a hedge fund in the city and lead smaller, struggling funds to close. Of the 400 hedge funds in Singapore, about four in 10 have less than $25 million in AUM, according to Eurekahedge.
Slated to come in force later this year, the new requirements will compel all hedge funds operating out of Singapore to have independent auditors and set up risk management systems.
A shift in fund-of-hedge-fund allocations to the region’s best-performing strategies may also lead to the closure of smaller strategies that have struggled to generate returns.
A recent Eurekahedge poll of global FoHF managers indicated that 60% planned to maintain their current allocations to hedge funds in Asia – the lowest figure among all other regions.