L&R Capital, a hedge fund manager set up in Hong Kong this year, will launch a global credit fund in the next few days and is planning a Beijing office, AsianInvestor can reveal.

The firm is readying its first strategy against a backdrop of improved performance by hedge funds globally, even though inflows remain muted after record investor withdrawals last year. 

The fund aims to raise $350 million from Greater China investors, such as high-net-worth individuals, family offices and institutions, chief investment officer Li Ran told AsianInvestor. She declined to provide more details.

It is the first offering from L&R Capital, which aims to build a presence in mainland China, in addition to its headquarters in Hong Kong's Sheung Wan district, next to Central. “We plan to open an office in Beijing next year, primarily for carrying out research,” Li noted.

Li joined in early November according to records of Hong Kong's Securities and Futures Commission (SFC). She was previously with Japanese bank Nomura, where she worked on the fixed income proprietary trading desk, said a source familiar with L&R.

There are two individuals named as responsible officers for the firm, according to the SFC website:  Chan Wai Yin and Ding Liqi. They, along with the firm, received licences for asset management and advising on securities on April 19.

Chan previously worked for Oceanwide Securities and before that KGI Asia and Phillip Securities (Hong Kong). Ding's previous employer was Munsun Asset Management, a Hong Kong-based external asset manager. 

The launch comes amid solid performance for fixed income/credit hedge funds in the past couple of years. According to data provider eVestment, such strategies gained 5.03% this year as of end-October, after gaining 7.56% in 2016.

Turning a corner?

The hedge fund industry as a whole is on track to post its best performance since 2013, generating returns of 7.18% as of end-October 2017 (after returning 5.71% last year), according to eVestment.

However, net inflows have been muted, at $2.5 billion between January and September this year, though that is a sharp improvement from the $70 billion of investor outflows seen in 2016, HFR noted in an October 19 report. 

Moreover, between the start of 2016 and mid-2017 far more hedge funds have shut down (1,538) than have launched (1,098), according to HFR. 

Of course, the best performers can still attract capital. Hong Kong-based BFAM, for instance, has grown to around $3 billion in AUM from $2.5 billion in May this year on the back of continued strong returns, according to Bloomberg.

Some industry observers have argued that the biggest competition for hedge funds in recent years has come from $4 trillion passive investment market, which has already overtaken the hedge fund industry in size.

A global hedge fund and investor survey by consultancy EY, released in November, said: “The low-cost fee structure of passive products, combined with their outperformance during the recent bull market, have shifted the conversation for some industry observers as to why hedge funds can charge higher fees for more moderate performance."

Nonetheless, investor appetite for alternative assets continues to be strong even as public markets have made strong gains this year, according to Elliott Shadforth, Asia-Pacific wealth and asset management leader at EY.

Investors continue to look for differentiated returns, and hedge funds offer a good tool for diversification, he told AsianInvestor.

The strong performance by traditional asset markets such as public equities is unlikely to diminish the appeal of hedge funds too much, added Shadforth. 

“Investors are not looking at alternative strategies to play traditional asset classes such as equities," he noted. "The allocation is not aimed at tracking those traditional benchmarks."