Northern Trust plans for Asia hedge fund growth

The US firm’s new Asia head of hedge fund services targets expansion in Hong Kong and Singapore, citing increased demand from Chinese clients and growth of alternative Ucits products.
Northern Trust plans for Asia hedge fund growth

Despite a stuttering summer for Asia’s hedge funds, rising demand among wealthy Chinese and the rise of so-called ‘liquid alternatives' is cause for optimism for the regional industry, argues Northern Trust’s new Asia head of hedge fund services.

Ali Sheikh sees opportunities coming from China’s expanding qualified domestic limited partner (QDLP) programme -- through which mainland private clients can invest in foreign alternative funds  -- and from Asian managers looking to launch hedge funds in Ucits wrappers (often called liquid alternatives) in Europe.

Northern Trust is targeting such opportunities, having added a new business development associate over the summer, as Sheikh was transferring from New York to succeed Jeb Altonaga in Hong Kong, after the latter's move to start-up Pinyin Capital Management. There are now 16 people on Northern Trust's asset servicing team in Asia.

The team is focusing now on Hong Kong hedge funds and plans to further expand its presence in the city, as well as in Singapore, said Sheikh. He is seeing more Asian hedge fund managers launching Ucits vehicles, which tend to mean a shorter due diligence process for investors because of their tighter regulatory structure. These strategies can then more easily be sold in other markets such as Europe.

Certainly, strong performance by Asia -- and particularly China -- hedge strategies this year may have boosted investor interest. Hedge funds globally are up just 1.77% for 2015, yet Asia ex-Japan funds were up 3.13% in October and have returned 6.94% this year, the best performance among the main regional strategies, according to Eurekahedge. The MSCI AC Asia ex-Japan was down 3.84% for the same period. 

rer for Japan strategies, with only one launch and three closures so far this year; that’s down from 11 Japan launches last year and 24 in 2013.

Sheikh expects the market to continue to wind down this year and not fully pick up until the second quarter of 2016. Still, Greater China strategies recovered somewhat from the summer volatility to gain 4.84% in October, leaving them up 8.86% in 2015, against flat returns for the CSI300.

Moreover, Sheikh said the growth of the QDLP scheme and Ucits alternative strategies in Asia should help the region's hedge fund market to mature, after it stalled this year, with a slowdown in launches following the summer turmoil.

There were 58 Asia ex-Japan strategy launches in the nine months to the end of September, down from 82 and 95 in the same periods in 2014 and 2013, respectively, according to Eurekahedge. The cupboard is even bahe said that more Chinese money going into hedge funds may boost demand for outsourcing, as independent services would increasingly be needed. 

Professional services firm EY’s 2015 global hedge fund survey released earlier this month found that 50% of Asia-based respondents outsource middle-office functions or are considering doing so, compared to 70% in North America.

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