Some of Asia’s newer hedge funds were a magnet for investors last year.
The assets of Oryza Capital and Pine River China Fund have expanded at least eight times since the funds started in the second half of 2013. BosValen Asset Management, Pleiad Investment Advisors and Guard Capital Management were among the 2014 startups that raised hundreds of millions of dollars each within a few months.
They stood out in a region where, on average, it takes almost two years for a hedge fund’s assets to increase to $250 million from $50 million, according to Singapore-based Eurekahedge Pte. Investors turned their attention to younger funds — and fresh entrants in some cases — as the regional industry beat global peers’ performance for a third straight year and some of bigger managers in Asia stopped accepting money after reaching capacity.
“There’s a supply of money coming back to Asia and that’s unprecedented,” said Myo Schollum, Asia-Pacific head of prime services coverage at Credit Suisse Group AG in Hong Kong. “There are six to eight hedge funds that launched with day-one capital in excess of $250 million. That’s previously unheard of in Asia.”
$1 Billion Mark
Oryza, the first Asia fund of Goldman Sachs Investment Partners, told investors in June it would stop taking additional money after it raised about $1 billion. Its Asia-focused equity long-short fund started in September 2013 with initial capital of $80 million.
Pine River China Fund expanded assets to about $850 million by the start of this year, from the $100 million it started with in October 2013, said a person with knowledge of the matter, who asked not to be identified as the figures aren’t public.
BFAM Partners (Hong Kong), spun off from Nomura Holdings Inc. in April 2012, increased assets to more than $1 billion from $323 million at the start of 2014, according to a person familiar with the fund.
Among newcomers, Pleiad is nearing $500 million in assets after starting the fund on Sept. 1 with just over $150 million, said a person familiar with the matter. Guard, which began with just under $50 million on Aug. 1, has grown to $292 million, another person said. BosValen has raised about $300 million since its early November inception.
Slow Rebound
Most of the funds’ asset gains were fueled by new capital rather than performance gains, the people said. Spokesmen at the firms declined to comment.
Pine River China Fund returned 30 percent in 2014, Guard gained about 10 percent in its first five months and BosValen returned just under 3 percent in the two months it traded last year. The other funds’ performances could not be confirmed. The Eurekahedge Hedge Fund Index, tracking managers globally, returned 4.4 percent last year.
Asian hedge-fund assets were slow to rebound after the plunge during the 2008 global financial crisis. While worldwide hedge-fund assets eclipsed the 2007 peak in 2010, it took the Asian pool three more years to do so, according to Chicago-based Hedge Fund Research Inc.
Only a few Asia-based startups have accumulated $1 billion or more since the 2008 crisis, including former Highbridge Capital Management Asia head Carl Huttenlocher’s Myriad Asset Management and Tybourne Capital Management (HK), led by Eashwar Krishnan, who earlier worked for Lone Pine Capital. The average Asian hedge fund oversaw $117 million at last year’s end, according to Eurekahedge.
Managers’ Pedigree
“A lot of the larger established managers were closed to new money, so inflows of capital were going into newer managers looking to scale or new launches,” said Shane Bolton, Hong Kong-based head of Asia prime brokerage at Goldman Sachs Group Inc. The difference with 2013’s startups “was consistency of pedigree and that a majority already had strategic capital, enabling them to reach critical mass at launch.”
BFAM is staffed by a former Nomura team of traders led by Benjamin Fuchs that traces its roots to an Asia-based internal fund started by Lehman Brothers Holdings Inc. in 2007. It started with Nomura support. Oryza’s Hideki Kinuhata and Ryan Thall traded for the global fund of Goldman Sachs Investment Partners, set up to allow clients to invest with some of the New York-based bank’s top proprietary traders.
Leland Lim, Guard’s chief investment officer, was previously co-head of Goldman Sachs’s macro trading team in the Asia-Pacific region outside Japan. BosValen CIO Ken Xu helped manage money at both Och-Ziff Capital Management Group LLC and billionaire Steven A Cohen’s SAC Capital Advisors. Pleiad co- founders Kenneth Lee and Michael Yoshino are alumni of Soros Fund Management and backed by Hong Kong-based HS Group in starting their own firm.
‘Alpha Market’
The regional industry has long been considered a far-flung fringe market by global institutions that have increasingly dominated hedge-fund inflows since the crisis. Credit Suisse statistics show it takes about 10 months to a year between the first conversation an Asian hedge fund has with a potential investor and the actual capital allocation, compared with six to seven months for their U.S. and European peers.
New deposits arrived as regional hedge funds outperformed global peers in each of the last three years, returning an annualized 10.4 percent to beat the 6.7 percent gain of Eurekahedge’s global index.
Asia-based hedge funds attracted an estimated $14 billion of new capital in 2013 and 2014, a turnaround from the $17.6 billion of outflows over the previous four years, according to Eurekahedge. The figures may underestimate inflows because larger hedge funds typically do not report to public databases.
“It needed a good 2013 for the global investors to say Asia can differentiate in performance, Asia is a good alpha market,” said Matt Pecot, Asia-Pacific head of prime services at Credit Suisse, referring to funds’ outperformance over market gains. “That’s why people are parking money here.”
Prime brokers provide services to hedge funds, including lending cash or stocks, settling their trades and linking them to potential investors.
In a region whose smaller markets are vulnerable to capital flows from the U.S. and Europe, there have been concerns rapid asset expansion will hinder hedge funds’ ability to generate investment gains.
Turiya Advisors Asia, which started in April 2010, decided to return 17.5 percent of its end-of-2014 assets to investors to maintain performance after the size of its hedge fund swelled with new capital and investment gains. The Hong Kong-based firm, led by former Goldman Sachs and Deutsche Bank AG trader Davide Erro, oversaw more than $3 billion after starting with $150 million.
