Hedge funds in Hong Kong are in abundance, with 676 strategies run by managers licensed by the Securities and Futures Commission (SFC) as at the end of September 2012.
It represents an all-time high and a 26% rise from the 538 funds managed in 2010, according to an SFC survey of licensed hedge fund managers.
However, assets are at $87.1 billion, down from a peak of $90 billion in March 2008. This indicates that while there are more funds than ever before, the average AUM per strategy has dropped.
One reason is a bifurcation of the industry, with a handful of funds with assets of $1 billion or more, while there are many smaller strategies with less than $100 million.
Hedge funds with $100 million or less represent 60% of industry assets, up from 57.4% in 2010. The number of mid-range funds with between $100-$500 million in AUM also decreased to account for 26.7% of the sector, from 29.5% in 2010.
It is a cause for concern, as a majority of Asian inflows are typically invested in the largest funds, while smaller strategies must work harder to gain capital.
North America was the biggest contributor of capital to Hong Kong-managed hedge funds, representing 42.6% of assets, followed by Europe with 18.6%. Only 6% of capital came from Hong Kong.
The dominance of North American capital in regional inflows is a trend that is expected to continue, according to capital introduction executives in Asia.
Institutional and professional investors account for most of the inflow, with 22.6% coming from high-net-worth individuals and family offices, and 21% from fund of hedge funds. Pensions represent 11.7% of industry assets, with 10.8% from foundations and endowments, and 4.3% from sovereign wealth funds.
The most popular strategies were equity long/short, which account for 33% of AUM, and multi-strategy with 30%. Among multi-strategy funds, the most common underlying strategies were equity long/short, credit long/short, and event-driven.
There were 310 licensed hedge fund managers as at last September, with 38 related firms, which the SFC defines as being mostly entities that had not launched funds at the time of the survey.