Lyxor is considering putting China strategies back on its hedge fund platform, eyeing macro and multi-strategy products and planning to launch its first pan-Asia Ucits vehicle, amid a promising start to 2017 for hedge funds.
The French asset manager offers a dozen Asia-based hedge fund managers on its managed-account platform or for direct investment out of more than 100 on the global approved list. That is on the low end of the spectrum historically, though Asia managers would usually represent around 10% of the total, said Stephane Macresy, Asia head of hedge fund selection at Lyxor.
“We've found that European and US investors at present prefer global Asian managers to country-specific ones,” he told AsianInvestor. “This is cyclical; it has not been the case in past.”
China product plans
Lyxor currently offers no China-only products. There's been more volatility and more macroeconomic risk around China in the past two years, Macresy noted, and investors have been worried about the top-down view of the mainland along with renminbi devaluation and policy risks.
All these factors, combined with violent swings in the local stock market, meant that 2016 was a difficult year for mainland hedge funds, he said.
Nevertheless, 20% of China hedge fund managers still generated positive returns, he noted, and most have made gains so far this year.
Moreover, US stocks and global geopolitical risk are at high levels, and it seems Asia may be more insulated than other regions from such issues, said Hong Kong-based Macresy (pictured left). “So maybe we will see renewed investor interest and add pan-Asian and China strategies again.”
However, research house eVestment reported big outflows from such strategies last year and does not expect demand to ramp up this year.
Most of the China funds that Lyxor looks at are based in Hong Kong or Singapore, with a team of analysts in Shanghai or Beijing. It considers smaller funds – those with $50 million to $100 million, which tend to run long/short equity strategies – through to the larger multi-strategy players running several hundred million up to a few billion dollars in assets, said Macresy.
“We have identified a few [of the bigger managers] that are ready to partner with us,” he added, “so once we see business appetite, we will launch a venture.”
Eyeing macro, multi-strategy
As for other types of strategies, Macresy said Lyxor was aiming to add global macro, long/short equity and multi-strategy managers, potentially including firms based in Asia. The current environment is most supportive for global macro managers, he added, but multi-strategy adds valuable diversification benefits.
Asia multi-strategy managers are moving to build out their offerings with a view to replicating the success of the big US firms, noted Macresy. The Asian players largely focus on regional underlyings, but they sometimes have a global bucket that may account for 10-20% of the strategy, he added.
Meanwhile, Lyxor is planning to launch an Asian Ucits fund – which will be the first on its platform – in partnership with a manager based in the region, said Macresy. He declined to name the firm in question. The product will be a replica of the manager's flagship Asia strategy, he noted, and “will hopefully be the first of a series of Asian Ucits offerings” to expand its $2.6 billion Ucits platfor,.
Macresy said he could not provide further details, such as what type of strategy would be or when it might launch.
So-called 'liquid alternative' products – Ucits vehicles offering weekly or even daily liquidity – have grown in popularity in recent years. Indeed, some Asian hedge fund managers want to create or expand a Ucits range of products, noted Macresy.
There are very few Asian Ucits hedge funds offered now, he added, but they will likely account for 10-15% of the region's hedge fund industry within a couple of years following the European path, up from a low-single-digit portion now.
The first two months of 2017 have been very good for most hedge fund managers, said Macresy. All credit, global macro, multi-strategy, long/short equity, quantitative and event-driven strategies on Lyxor's platform are up, he noted, and two-thirds of the CTA funds are in positive territory.
Hedge funds globally were up 0.87% in January, with Asia ex-Japan funds up 1.93%, emerging market strategies up 3% and multi-strategy products up just over 0.5%, according to Eurekahedge.
Whether this trend continues remains to be seen – 2017 is looking likely to be a rough ride.