The search for yield is increasingly seeing investors look to liquid alternatives as interest rate rises loom on the horizon, argue Natixis Global Asset Management (NGAM) and Deutsche Bank.
Some investors are looking at private equity, and liquid alternatives are a theme for institutional investors, said Madeline Ho, Asia-Pacific head of wholesale fund distribution at NGAM. She cited as an example funds of hedge funds (FoHFs) with daily liquidity.
"After the financial crisis, transparency and liquidity are two criteria that have become very important, especially for institutions,” she told AsianInvestor.
There is evidence to support Ho's views. In the second quarter, FoHFs saw net inflow of $565 million, their first quarterly inflow since the first quarter of 2011, according to Hedge Fund Research.
Increased interest in liquid alternatives has prompted hedge fund managers to respond, according to a recent Deutsche Bank survey*. Forty-two percent of those polled said they offer such products, up from 27% last year. A further 34% said they would consider adding these types of products.
Indeed, JP Morgan Asset Management said in June that it was looking to launch multi-manager hedge strategies with daily liquidity in Asia, as reported. The firm declined to provide a time frame as to when that would happen.
Steven Billiet, JP Morgan AM's Singapore chief executive, said at the time that such products could be popular, as some investors are reluctant to move into areas where it's hard to redeem their money quickly.
Yet such liquidity requirements change how these portfolios have to be managed and may affect performance, he admitted. “Liquidity doesn't come for free – you might need to give up a bit of long-term performance for short-term liquidity.”
Moreover, in April last year NGAM launched the Aurora Horizons Fund in the US. It is a multi-strategy mutual fund that invests across a range of hedge fund managers.
Meanwhile, the French firm is on a drive to penetrate the wholesale retail markets in Asia.
In Hong Kong, three Ucits fixed income funds have been submitted for regulatory approval, and Ho hopes to bring them to market by the end of the year. They would join five equity funds already available there.
NGAM plans to register another five or six funds after that, but Ho did not give details on what the strategies would be.
In the Lion City, it has 16 retail products and seven for accredited investors, and it expects this to increase.
The firm joins a raft of other firms that are setting up or building out in Hong Kong with an eye on the Rmb100 trillion-plus ($16.3 trillion) of deposits in China that could be accessed when cross-border mutual recognition is implemented.
Following its acquisition this month of a 49% stake in Hong Kong asset manager EIP’s exchange-traded funds business, equity broker CLSA announced plans to launch a range of smart-beta ETFs in Hong Kong by the end of the year.
BlackRock, Franklin Templeton and Vanguard are three other examples of firms building their Hong Kong-domiciled fund ranges.
It may be that NGAM will launch products to capture outbound money from China when Hong Kong-China mutual recognition is introduced, but Ucits remains its structure of choice for now.
“At this stage we are observing all three [of Asia’s] passporting schemes. We will not necessarily jump on all three; they serve different purposes,” said Ho.
“It’s important to see the final details before we do something," she added. "We are new to Hong Kong, so we are focused on making our Ucits range available.”
The firm set up its office in the city in the fourth quarter of 2012. Its distribution team now numbers seven in Singapore and five in Hong Kong.
As well as retail investors, it sees the growth of the family office segment as an opportunity.
“Multi-family offices are in general like a semi-institution,” said Davy Yuen, NGAM's head of wholesale distribution for Hong Kong. “They are a level above mass retail, but not as rigid as highly regulated institutions, so they are more flexible.”
He said newer family offices are trying to be creative and looking for non-mainstream products. “They want to find something very niche. Relatively more established offices are looking for sophisticated products like hedge funds or alternative investments that fit the needs of the client.”
NGAM had global AUM of $930.5 billion as of the end of June, $30.6 billion of which was sourced from Asia, mainly from institutions.
* Deutsche Bank surveyed 212 investor entities worldwide that manage more than $804 billion in hedge fund assets and 86 global hedge fund managers.