Asian Hedge funds unpacked

In part two Stephanie Cao, head of investments at the London branch of Nedcor Retail Investments (NRI), looks at the Asian hedge fund industry.

Cao looked at what's working there and what the opportunities are. "It was the best investment story, internationally, last year," Cao says.
 

"Be careful about grouping the various countries as the obvious dangers when grouping European countries, like Germany, Italy and the UK," she warns.
 

Thailand was the best performer in the region, by far, followed by China, outperforming the S&P.
 

Cao says that the hedge fund industry there is still in its infancy, with assets allocated expected to grow by 40% from $14bn to $R33bn, with the number of funds increasing from 160 in January 2002 to 360 by the end of last year.
 

The Asian story is opportune with the Asia/Pacific market represents just 15%of the world market capitalisation, while these hedge funds are just 5% of the global number. The main strategy in this area remains the long/short approach, in terms of strategy and assets. 
 

Asia is playing a catch up game. There is room for growth and regulatory changes in place to stimulate growth. The short selling rules have been liberalised.
 

Assets are still flowing to long short equity funds, accounting for 81% assets. 90% of the money is flowing into 10% of the funds.
 

Money is still coming from the USA and UK and Switzerland. Singapore is the local growth area, while there are some start-ups in Tokyo, governed by the regulatory environment. Australia is becoming a player, on the commodity level, in terms of physical location of funds.
 

Funds coming to market are single country funds with a return of the macro and currency funds. The bulk of the funds are under $25m in size, which is the generally accepted breakeven point.
 

Current trends show that regulations have been developed and there are better funded start-ups, more professional structures and a clearer focus on risk control. Asian managers understand the importance of risk control, following their experiences during the Asian crisis.