Title: Hedge Funds Revisited Paul Smith Head of Global Fund Services
1Hedge Funds RevisitedPaul SmithHead of Global
Fund Services
May, 2001 Hong Kong
2Overview of the Hedge Fund Industry
- It is estimated that the global hedge fund
universe has grown from 300 funds in 1990 to 4000
plus today. - Assets under management suggest a pool of capital
exceeding US400 billion, before leverage. Asia
constitutes 12 billion (3) of that. - Historical performance was based on exploiting
inefficiencies in the marketplace. Supply
inefficiencies are set to grow thus providing
further opportunities. - Hedge funds however continue to be viewed
cautiously. The furore surrounding LTCM only
serves to exacerbate this issue.
Source Bank of Bermuda
3Overview of the Hedge Fund Industry
- The concept of leveraging remains poorly
understood therefore education to mitigate this
is needed. - Higher fees and the complex pricing methodologies
also take their toll. A simplification of the
process will be required in order to meet the
demand for greater transparency. - In the competition for a place in the asset
allocation model, hedge funds need to ensure that
they have both easily understood, and readily
available data. - Hedge strategies are often complex, hard to
understand and as a result difficult to
communicate. This needs to be addressed.
Source Bank of Bermuda
4Location and Allocation of Asian Based Hedge
Managers by Country
No of Assets of Total Managers as
at 31/12/2000
- Hong Kong 33 1,476 42
- Singapore 11 156 4.5
- Japan 13 1,257 36
- Thailand 3 33 1
- Australia 24 505 15
- Malaysia 3 15 .5
- Korea 2 35 1
- TOTAL 89 3,474
Source Bank of Bermuda
US mn
5Size of all Asian Managed Funds as at December
31st, 2000
- lt Million US 2
- lt 10 Million US 34
- lt 100 Million US 34
- lt 1 Billion US 6
- New or Undisclosed Funds 24
Source Bank of Bermuda
6Global Asset Allocation of the Hedge Fund
Universe as per HFR ()
Fixed Income / Arbitrage 17 Equity Market
Neutral 10 Event Driven 10 Emerging
Market 3 Equity Long / Short 37.7 Convertible
Arbitrage 2 Global Macro 20 Short Bias 0.3
Source Bank of Bermuda
7Asset Allocation of the Asian Hedge Universe (s
from global pool)
End End 1999 2000
Long / Short Asia inc Japan 33.33 30.21 Long /
Short Asia ex Japan 2.58 2.72 Japan Long /
Short 55.47 52.17 Japan Market Neutral 6.50 9.31 O
thers 2.13 5.59
Source Asia Hedge
8Growth Predictions
- Hong Kong - Boutique market maintains current
momentum and not too many new managers are being
seen. The lack of marketing resources within
their operations further exacerbates this
problem. - Singapore - Boutique managers have benefited
historically from the Boutique Manager License
which provided a long only environment for many.
Changes are now underway however with many
managers switching their mandates to absolute
returns. The MAS are however restricting the
maximum to 30 accredited investors. As a result
any meaningful change in the regulatory framework
will be required to ensure further real growth.
Source Bank of Bermuda
9Growth Predictions
- Australia - Boutique managers had a mixed start,
but have benefited from the availability of
quality people. The focus is on managers
building a solid reputation and the consultant
network are aggressively educating the community.
The market is poised for considerable growth. - Japan - Japan has seen strong growth. Locally
pension funds are focusing on absolute returns
and are aggressively setting up fund-of-fund
institutions to manage their alternate portfolio
management. Hedge funds are therefore well
placed to benefit. The Japanese market is
considered the prime growth prospect for the
region.
Source Bank of Bermuda
10Conclusion
- The next phase is for Asian investors to start
buying global fund of funds and single manager
US/European products. - Interest in Asian based managers will mainly come
from outside of Asia.