Hedge Funds Take Root in Asia

Article excerpt

HEDGE funds are increasingly popular in Asia as regional fund managers seek to cash in on the industry's success with investors in the West. Compared with the US and Europe, hedge funds have a tiny share of the Asian fund management market.

Recent figures compiled by the Bank of Bermuda found there were 89 hedge funds with $3.4bn under management. This compares with research compiled by the Hennessee Group that suggests there is about $400bn of equity in hedge funds worldwide.

Asian investors have been wary of hedge funds because of the role they played in the region's financial crisis in 1998. The near-collapse of US-based Long-Term Capital Management, after Russia defaulted on its debt, compounded Asian fears after this triggered another assault on the region's already bruised emerging markets.

Add to this the demise of Julian Robertson's Tiger funds and George Soros' Quantum funds, and many thought hedge funds were on the verge of interment. Continued high returns in the US and Europe, however, have helped investors and fund managers overcome their queasiness.

Singapore and Hong Kong are changing their rules regarding hedge funds to encourage more participation. The Monetary Authority of Singapore issued a set of regulations last month allowing hedge funds to be domiciled there and opened them to investment by anyone with $55,250. During the same week, Hong Kong's Securities & Futures Commission said it was planning to reveal similar guidelines in late August.

Some mutual fund managers are surprised that hedge funds are taking off in Asia. They say the secretive and unregulated nature of hedge funds play to regional preferences rather than encourage the nascent trend toward better corporate governance and accountability.

Moreover, the fact that many hedge funds are highly leveraged is something the region does not need as it tries to regain equilibrium as the US economy slows.

Others believe that it's impossible to stand in the way of the wave, particularly if hedge funds hold true to their purpose: that the fund can make returns in either a bull or a bear market by "shorting" to cover long positions. Indeed, hedge funds have trumped the average return for US stock mutual funds in 12 of the past 14 years.

"There is a place for hedge funds in Asia provided they are sensibly managed," said John Mytton, investment director of Global Asset Management. …