Wave of hedge fund closures tipped
Recent moves by hedge funds in Hong Kong – such as HT Capital and reportedly also Azentus – to return some or all investor capital are seen as likely precursors to a wave of closures.
Philippa Allen, chief executive of consultancy ComplianceAsia, has seen a trend for hedge fund managers to convert to family offices and expects it to continue this year.
“It’s expensive to maintain operations for third-party money if you’re not producing the returns,” she said. “With a proprietary family office structure, you don’t have to explain your process to clients, and you don’t face the same regulations.”
She cited, among other issues, continued uncertainties over fundraising in Europe due to the Alternative Investment Fund Managers Directive. The law makes it harder for non-EU asset managers to market their strategies into EU member states.
“You have to wonder what would be the attraction [of continuing to run a hedge fund under these constraints],” remarked Allen.
One Asia-Pacific head of prime services at a large bank made a similar point: “The family office construct can simplify things; it can reduce the cost of running a hedge fund business. It doesn’t mean the manager has taken his foot off the gas – more that he has decided to run the business differently.”
Azentus, an Asia-focused global multi-strategy manager, will see three partners leave in March and is giving investors the option to accelerate redemptions, according to Bloomberg.
The firm, set up by former Goldman Sachs trader Morgan Sze, launched in 2011 with $1 billion in assets before growing to over $2 billion. But the returns of the now $615 million Azentus Global Opportunities Master Fund are said to have disappointed investors and prompted withdrawals.
The fund returned 1.1% last year, said a Bloomberg source, against a rise in the Eurekahedge Hedge Fund Index, which tracks managers globally, of 4.4%. The source added that the fund had gained nearly 12% since inception.
Another industry source told AsianInvestor that Azentus is considering converting to a family office setup.
Julie Chang, Azentus’s head of investor relations, declined to comment.
In addition, HT Capital is shutting after 14 years, following worsening performance and subsequent redemptions, as reported last month by AsianInvestor.
The husband-and-wife team who founded the firm, Karl Hurst and Ophelia Tong, said they have not decided what to do next, but that retirement is "not a preferred option". Some are speculating that launching a family office is an option the couple would consider.
Meanwhile, Turiya Capital, a Hong Kong-based long/short equity firm, was reported by Bloomberg last month to be returning 17.5% of its $3 billion in AUM because they had swelled too quickly, thereby potentially hindering performance. A senior executive at the fund declined to comment.
Turiya may be in a different position from the other two managers, but its move also highlights the dilemma faced by the hedge fund industry. If a firm takes on too much in assets, it can be more difficult to deploy them, particularly in less deep and liquid markets, such as many in Asia.
On the other hand, investors and regulators are increasingly demanding more robust operational infrastructure – which can be too expensive for managers below a certain size.
With additional reporting by Oliver Jones.