Fund of hedge funds giant RMF, is aiming to dedicate a quarter of its asset exposure to Asian strategies. RMF, a Swiss-based fund of hedge funds that is part of the Man Group, currently has about $13 billion in assets under management. Fred Siegrist, RMF's CIO, says the firm will soon have a physical base in the region with the opening of the firm's Tokyo office this spring.
"From a global macro picture we see this as the century of Asia, and especially China," says Siegrist. "It's a clear call on Asia. Investors are also very interested in gaining exposure to the Asian region."
According to Siegrist, RMF presentely has about 10% to12% of its assets exposed to Asia. "The target allocation for Asia is at least double the current level, but this will take place over the long-term," he says. "We're concentrating a lot of our efforts on searching for managers with Asian exposure."
He expects the Tokyo office will help RMF to be closer to the market and the managers in Asia. "The selling opportunities in Japan are also greater than elsewhere in the region," he adds.
Siegrist says the Tokyo office will be staffed with at least three people initially, and that this team will take responsibility for conducting due diligence on Asian managers. The firm will be transferring a professional from its New York office to spearhead the operations in Tokyo.
He says this number is rising most rapidly in the equity hedge portfolio, reflecting the prevalence of the equity long/short strategy among Asian managers. "We're also looking at Asian fixed income arbitrage as well as distressed debt managers, as we see a lot of opportunities with non-performing loans. However, the clear growth is on the equity hedge front," he comments.
Siegrist cautions that the increase in Asian exposure will be achieved gradually over time. "We do not want to make any concessions on quality. Asian managers will have to fulfil our criteria."
Although he feels Asian hedge funds are increasingly coming up to global standards, his concern lies with the level of experience of Asian managers. "At the moment, most of them have a long-only background and have not had an opportunity to prove their capability for making money on the short side," he argues. "However, this situation will change with time."
With the bull market flattering everyone, Siegrist says the key will be to see how the Asian-focused hedge funds perform in more difficult market environments arising from political instability, or the overheating of China's economy.
While he has some concerns about capacity constraints in Asia's hedge funds, Siegrist is encouraged by the new talent he is seeing entering the industry.
"People are leaving the banks and building their own businesses," he points out. "Especially in Japan, attitudes are totally different compared to what we saw 10-15 years ago when people were staying put with their employers."
Siegrist says the targeted increase in Asian exposure also applies to Hedge Fund Ventures (HFV), the RMF arm that provides seed capital to promising start-up funds. However, he points out that HFV's allocation will need to be well balanced and cover a variety of strategy styles.
Towards the end of last year, HFV invested in two Asian start-ups, Korean equity long/short fund PineTree (managed by Namuh Rhee) and Hawaii-based Japanese event driven fund Stone Harbour (managed by Mitchell Porten).
"We are currently talking to several other Asian hedge fund candidates for seed capital investments, but as yet have not made any decisions," he concludes.