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Hedge Funds Revisited Paul Smith Head of Global Fund Services

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Hong Kong - Boutique market maintains current momentum and not too many new ... Australia - Boutique managers had a mixed start, but have benefited from the ... – PowerPoint PPT presentation

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Title: Hedge Funds Revisited Paul Smith Head of Global Fund Services


1
Hedge Funds RevisitedPaul SmithHead of Global
Fund Services
May, 2001 Hong Kong
2
Overview 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
3
Overview 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
4
Location 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
5
Size 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
6
Global 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
7
Asset 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
8
Growth 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
9
Growth 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
10
Conclusion
  • 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.
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