Singapore attracts first Asian fund of hedge fund

KBC Alpha, a dedicated fund of hedge fund unit of Belgian bank KBC's alternative investment group, is setting up shop in Singapore.

The Asian fund of hedge fund specialist currently has $400 million under management, invested in three funds. A Japan fund of hedge fund, launched in 2002 holds half the assets, while the rest is split between an Asia fund and an Asia including Japan fund launched in 2003 and 2004 respectively. The funds target a return between 12%-15%, aiming for a volatility of less than 5%.

David Walter, KBC Alpha's director, who has relocated to Singapore, says the move has been prompted by the growing need to be on the ground in Asia and part of the information flow as the regional hedge fund industry expands rapidly.

"When we first launched our Japan fund in 2002, there were lots of European based managers focusing on Japan. However, as we've expanded our mandate to include Asia-wide funds and as the number of Asian-based hedge funds has grown rapidly, we felt it was important to have a base in the region where we could be in the thick of the action."

KBC Alpha's move to set up an Asian office is part of a growing recognition among European fund of fund managers that the Asian-based hedge fund industry has reached critical mass. Those with sizeable Asian allocations have been setting up offices in the region.

Earlier this year, fund of hedge fund manager GAM, which manages a $250 million Asian fund of hedge funds, announced it was setting up a research presence in Hong Kong. Recently, RMF, one of the world's largest fund of hedge funds also established is first Asian office, based in Tokyo.

KBC Alpha is the first Asian fund of hedge fund manager to choose Singapore as its Asian base.

"We chose Singapore over Hong Kong because of the friendly regulatory environment and because it's a central location for travel around the region," says Walter. He notes that the Singapore office will cover research and due diligence purposes, but will not be used for marketing activities.

"We have two dedicated marketing staff from KBC Securities based in Tokyo, who market our funds in the Asian region," he says.

Walters comments that most of KBC's investors are Japanese institutions and high net worth investors, although the fund has also set up a fund structure that enables it to access US-based investors.

KBC's Alternative Investment Management group (AIM) came into being when KBC Bank acquired the financial products business of US hedge fund group DE Shaw in 1999. DE Shaw's expertise in convertible equity derivatives led KBC to launch a single manager relative value hedge fund business in 2001. This is currently one of Europe's largest single manager hedge funds with assets reaching $5 billion.

Walter says that KBC Alpha, the fund of hedge funds unit of the alternative investment business, decided to focus on Asia because of the expertise of the ex-DE Shaw team in the Japanese and Asian markets. Neale Safaty, KBC Alpha's CIO was previously a convertible and equities salesman for DE Shaw based in Tokyo.

Walter, who heads up the research side, spent 10 years with Barings as a proprietary trader in London and Tokyo. He has also managed two boutique long/short funds investing in Japan out of London.

Walter says the KBC Alpha team will soon be expanding. A new researcher will join Walter in Singapore and the team will also add a dedicated CFO/COO. Currently the operations and administration for the fund of funds is conducted by the KBC AIM team.