Man Investments is seeding subsidiary GLG Partners’ new Asia long/short equity strategy with $150 million in proprietary capital as it aims to build track record to target institutional investors.
Tim Peach, Asia managing director of Man Investments, says the market-neutral strategy is being run by GLG Partners’ newly established Asia investment team in Hong Kong headed by David Mercurio. It is potentially looking at March 2013 as the earliest date for on-boarding institutions.
GLG Partners, which Man acquired in 2010, runs various strategies in Europe under its European distressed and equities teams as well as a global credit team.
The new Asia long/short equity strategy is both GLG Partners’ first Asia-focused hedge fund strategy, but also the first hedge fund strategy focusing on discretionary Asian equity investment under Man's internal hedge fund business.
Peach points to inefficiencies in Asian equity markets partly borne of a lack of natural buyers, with institutional investors in the region still largely under-allocated in markets including South Korea, Singapore, Taiwan and Hong Kong.
A purely external crisis, therefore, can cause big swings in Asian equity markets as foreign investors repatriate capital, which in turn drags down market performance.
“These inefficiencies represent a great opportunity for us to build an Asia long/short strategy, because if you can understand what causes Asian share prices to move – the reasons behind the inflow and outflow from foreign investors and the fundamentals of these listed companies – and take advantage of that, you can make money,” he reflects.
He observes that existing long/short managers playing Asia stocks have struggled in recent years, and argues that many have not got their strategies and structures right.
Consequently, he says GLG’s team is aiming to fill that gap by seeking active returns based on non-directional, market-neutral stock-picking. It is banking on operational support from Man in terms of sales and marketing infrastructure and a risk management system.
Peach joined $52.7 billion multi-platform hedge fund manager Man Investments in 1997 and was promoted from head of Southeast Asia sales earlier this year. He succeeded previous Asia head Tim Rainsford, who himself was promoted to European sales head in London.
Aside from GLG Partners, Man’s Hong Kong office also houses the Asia trading operations of quantitative managed futures house AHL, a systematic trading hedge fund manager that forms the other leg of Man’s internal hedge fund investment management business. The group also owns FRM, a fund of hedge fund platform.
With Asian offices in Singapore, Hong Kong, Sydney and a small rep office in Beijing, Peach does not see a need to open more offices in Asia in the next five years, arguing that being too spread-out geographically “goes against the ethos of hedge fund managers”.
He feels it is more important to have freedom to seek risk-adjusted returns by moving in and out of a market and not being constrained to run a country-specific equity fund out of a market it operates in, for example.
Institutional investors in many Southeast Asian markets still face regulatory restrictions on overseas investment, and as a result managers such as Man find it challenging to market products there.
Peach confirms that the sales and distribution focus continues to be North Asia, targeting insurers, pension funds and sovereign wealth groups in South Korea, Hong Kong and Taiwan, as well as Singapore where he is based.
He reflects how the acceptance of hedge fund strategies among institutional investors has evolved over the past 15 years, when he first started at Man and inflows all came from private clients.
“The year 2008 was a watershed moment where private clients lost confidence in hedge funds due to poor experience. But institutional clients saw bond yields fall in 2008, put the painful lesson behind them and continue to find alternative sources of return from hedge funds and bypass equities due to still-high volatility,” says Peach.
“Hedge funds were often blamed for the Asian crisis in 1997 by political elites at the time. But today when you see sovereign wealth funds of some Asian countries suggesting they should also invest into hedge fund strategies, it is quite a big leap for them politically.”