Greater China hedge funds feed industry gains

Asian managers turn in a benchmark-beating 4% gain in January, refuelling hopes of attracting much-needed investor inflows to the sector. Event-driven funds fare best.
Greater China hedge funds feed industry gains

Asian hedge funds, led by strong-performing Greater China and event-driven strategies, turned in a benchmark-beating average gain of 4.02% in January, according to a new Eurkeahedge report.

Managers beat the MSCI Asia Pacific ex-Japan Index, which was up 3.02% last month. The Q1 performance of Asian hedge funds is being closely watched, with the sector pinning hopes on early-year gains to help draw investment capital in 2013.

Asian hedge funds saw net outflows of $500 million last year, in part due to an average performance loss of -12% in 2011. After months of navigating through choppy markets, the sector turned in an 11.5% gain for 2012, fuelling cautious optimism that inflows will return to the region this year.  

Positive returns were posted across all strategies last month, which Eurekahedge attributes to rallying equity markets on a global basis.

Event-driven funds focused on Asia ex-Japan had the best gains among all strategies in January, returning 6.17%. Managers with mainland portfolio exposure also fared well, with four out of the 10 top-performing funds having a Greater China mandate.

Eurekahedge's overview of regional industry trends shows that the two strategies have increased their share of the market in the past five years. 

Event-driven funds account for 16.3% of the market by AUM, more than double the 6.8% in 2007. During the same period, Greater China-focused hedge funds have grown their share to 13.6%, up from 9.8%. 

Meanwhile, long/short equity strategies continue to lose ground, falling to 35% of industry AUM, compared to 54% in 2007.

Among hedge fund service providers in Asia, new market share figures show the effect of client dispersion among prime brokers, and consolidation of administrators.

Asia’s two long-time prime brokerage market leaders have maintained their top spots, with Goldman Sachs holding a 24.8% share by AUM as of December 2012, followed by Morgan Stanley with 19.7%.

However, UBS holds a close third with 15.7%, up from 10.7% in July last year. Rounding out the top five are Deutsche Bank (10.8%) and Credit Suisse (9.7%), which have also gained market share since mid-2012.   

The collective market share of Goldman Sachs and Morgan Stanley has fallen to 44.5%, from 53% in 2007 – a result of hedge funds using multiple prime brokers to reduce counterparty risk, notes Eurekahedge.

Meanwhile, hedge fund administrators in Asia are seeing a shift in market share due to consolidation. HSBC remains top with 20.3%, followed by State Street (17.2%) which acquired Goldman Sachs Administration Services last year, Citco (12.3%) and RBC Investor Services (11.9%).

The top three administrators account for 49.8% of the market, up from 47.9% in 2007, notes Eurekahedge. It is the result of industry consolidation, with smaller players leaving the market due to thinning margins and the closure of hedge funds with low AUM.

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