Preqin Special Report: Asia-Pacific Hedge Funds

Transcription

1 Content Includes: Preqin Special Report: Asia-Pacific Overview of Asia-Pacific March 2015 New regions for investment are emerging amid a changing economic and regulatory landscape. Overview of Asia- Pacific Hedge Fund Performance Performing better than hedge funds globally following economic growth in region. Institutional Investors in Asia-Pacific A look at the region s diverse range of active investors in hedge funds. Asia-Pacific-Based Investors Outlook on What do investors look for in fund managers in 2015? Did hedge funds meet their expectations in 2014? alternative assets. intelligent data.

2 Preqin Special Report: Asia-Pacific The Asia-Pacific Opportunity Asia-Pacific as a destination for hedge fund management has been expanding rapidly over the past few years; over 2014 alone industry assets in the region grew by almost 3. Much of this growth has been driven by the growing base of institutional investors in the region, from large sovereign wealth funds through to small local pension schemes, that have increasingly begun to turn to hedge funds to help meet portfolio liabilities and long-term investment objectives. Recent regulatory reforms that have swept across the region have enabled both fund managers and investors alike to ramp up their activity in the hedge fund space, and this rapid growth is expected to continue over the next few years as more regions for hedge fund activity emerge within Asia-Pacific. In this report we look at the state of the hedge fund industry in Asia-Pacific by examining both local funds and those from beyond its shores investing in the region. We also take a closer look at investors from Asia-Pacific using data taken from Preqin s award-winning Hedge Fund Investor Profiles online service and the results of investor interviews carried out at the end of Asia-Pacific-based hedge funds represent $145bn in assets under management Top Five Leading Centres for in Asia- Pacific (by AUM) Hong Kong $61bn South Korea $5bn Japan $10bn 2,213 hedge funds are based in Asia-Pacific Rest of Asia- Pacific $5bn Singapore $29bn Australia $36bn Contents Asia-Pacific-focused hedge funds have delivered annualized returns of 11.91% over the past three years 556 Asia-Pacific-based institutional investors invest in hedge funds Overview of Asia-Pacific...3 Overview of Asia-Pacific Hedge Fund Performance...5 Institutional Investors in Asia-Pacific...7 Asia-Pacific-Based Investors Outlook on...8 2

3 Preqin Special Report: Asia-Pacific Overview of Asia-Pacific Asia-Pacific, as a centre for hedge funds, is expanding rapidly. Australia, Singapore and Hong Kong lead the way as the principal financial centres in the region; however, new regions for hedge fund investment have emerged over the past five years as a result of a changing economic and regulatory landscape. In this section we examine the industry within Asia- Pacific, and take a closer look at hedge funds located outside its borders but with a focus on investment in the region. Asia-Pacific Adds $33bn in 2014 As of 31 December 2014, Asia-Pacific-based hedge funds represented $145bn of the $3.02tn in global industry assets (Fig. 1). The Asia-Pacific hedge fund industry is growing rapidly; from 2013 to 2014, the industry accumulated an additional $33bn in capital, a 29% growth over the 12 months ending 31 December Hong Kong, Australia and Singapore Are the Established Centres for in Asia-Pacific Fig. 2, taken from the 2015 Preqin Global Hedge Fund Report, shows the leading 10 countries globally in terms of the assets under management of the hedge funds based in that region. Three countries within Asia-Pacific Hong Kong, Australia and Singapore are in this group of leading locations for hedge fund management, with Hong Kong representing the larger amount of assets ($61bn). In fact, the combined assets of the funds within Singapore, Australia and Hong Kong represent 87% of all assets in Asia-Pacific-based hedge funds. The largest hedge fund manager in the region, Platinum Asset Management, is based in Australia (Fig. 4). In fact, nine of the 10 largest fund managers in Asia- Pacific are based in either Singapore, Hong Kong or Australia. Asia-Pacific-based hedge fund managers account for 65% of all hedge fund managers in the industry that manage Asia-Pacificfocused hedge funds. Of the remaining 35%, groups outside the region which run funds focused on the region, more than half are based in North America (56%), with 4 headquartered in Europe and in Rest of World (Fig. 5). Equity Strategies Dominate the Asia-Pacific Hedge Fund Landscape Equity-based hedge fund strategies are the most commonly utilized strategy among fund managers with a focus on Asia- Pacific; 6 of funds based within Asia-Pacific utilize an equitybased approach, and 55% of funds investing in Asia-Pacific from other regions also invest primarily as an equity strategy (Fig. 6). Fund managers investing in Asia-Pacific from beyond the region are more likely to employ a macro strategy when investing in the region compared to local funds. Eighty-six percent of Asia-Pacific-focused hedge fund vehicles managed by local managers are structured as single-manager hedge funds (Fig. 7). However, fund managers investing in the region from beyond its borders employ a greater variety of structures when investing in Asia-Pacific. Seventeen percent of non-asia-pacific-based fund managers invest in the region through fund of hedge funds products; these funds are a key way for investors from outside Asia-Pacific to gain exposure to these markets through a fund which may be managed from the US or Europe. The regulatory European UCITS wrapper is another product used by managers from beyond Asia-Pacific to create hedge fund products investing in the region; of funds investing in Asia-Pacific from outside the region are structured as UCITS funds. Fig. 1: Hedge Fund Manager Assets under Management by Region Region Assets under Management ($bn) North America 2,198 Europe 609 Asia-Pacific 145 Rest of World 67 Total 3,020 Source: 2015 Preqin Global Hedge Fund Report Fig. 2: Breakdown of Hedge Fund Manager Assets under Management by Country Firm Headquarter Location Assets under Management ($bn) US 2,154 UK 413 Jersey 62 Hong Kong 61 Brazil 51 Sweden 39 Australia 36 Canada 31 Singapore 29 France 25 15% 5% 1% 1% 3% 3% 1% 1% 23% Source: 2015 Preqin Global Hedge Fund Report Fig. 3: Breakdown of Asia-Pacific-Based Hedge Fund Managers by Location 3 Hong Kong Singapore Australia Japan China India South Korea New Zealand Malaysia Thailand Other 3

4 Preqin Special Report: Asia-Pacific Local Funds Outnumber their Global Counterparts Fig. 8 shows the number of funds launched each year with a focus on Asia-Pacific. The region showed significant growth as a destination for hedge fund investment from 2005, reaching a high of 186 Asia-Pacific-focused fund launches in The number of fund launches with a focus on the region fell in 2013 and 2014; this is a trend that has been seen on a global basis, with fewer funds being launched in these years than at the start of the decade (please see the 2015 Preqin Global Hedge Fund Report for more details). Until 2005, it was predominantly funds from outside Asia- Pacific that were launched to focus on the region; however, from this year onwards, there was a rapid proliferation of funds based in the region investing in local markets. In 2004, 47% of all Asia- Pacific-focused hedge funds launched were managed by Asia- Pacific-based managers; this share jumped to 74% in Fig. 4: Largest Asia-Pacific-Based Hedge Fund Managers by Assets under Management Manager Location Year Established Assets under Management Platinum Asset Management Australia 1994 $20.7bn as at 31 December 2014 Value Partners Hong Kong 1993 $12.9bn as at 31 December 2014 Hillhouse Capital Management Singapore 2005 $7.8bn as at 31 March 2014 Dymon Asia Capital Singapore 2008 $4.5bn as at 1 January 2015 Macquarie Investment Management Australia 2003 $3.8 as at 31 October 2014 Myriad Asset Management Hong Kong 2011 $3.8bn as at 1 January 2015 SPARX Asset Management Korea South Korea 1999 $3.2bn as at 31 January 2015 Prime Capital Management Hong Kong 2004 $3.0bn as at 30 November 2014 Turiya Capital Hong Kong 2010 $3.0bn as at 31 December 2014 Orchid Asia Group Management Hong Kong 1993 $2.8bn as at 31 December 2014 Source: 2015 Preqin Global Hedge Fund Report Fig. 5: Breakdown of Asia-Pacific-Focused Managed by Firms Headquartered Outside the Region Split by Location (Proportion of Firms) Fig. 6: Breakdown of Asia-Pacific-Focused by Core Strategy 4 56% North America Europe Rest of World Proportion of Asia-Pacific-Focused Funds % 6% 5% 7% 7% 6% 6 Asia-Pacific-Based 55% Asia-Pacific-Focused from Outside the Region Niche Strategies Multi-Strategy Relative Value Strategies Credit Strategies Event Driven Strategies Macro Strategies Equity Strategies Fig. 7: Breakdown of Asia-Pacific-Focused by Structure Fig. 8: Asia-Pacific-Focused Hedge Fund Launches Proportion of Asia-Pacific-Focused Funds % 7% 86% Asia-Pacific-Based 1% 3% 17% 64% Asia-Pacific-Focused from Outside the Region Managed Account - FoHF Listed Funds UCITS Managed Account - Direct Commingled FoHF Commingled Direct No. of Fund Launches Pre Year of Fund Launch Asia-Pacific- Focused from Outside the Region Asia-Pacific- Based Hedge Funds 4

5 Preqin Special Report: Asia-Pacific Overview of Asia-Pacific Hedge Fund Performance Riding on the wave of economic growth in the region, Asia-Pacific-focused hedge funds have generally performed better than other hedge funds globally. This is especially so for managers based in Asia-Pacific, which tended to do significantly better than managers based outside the region as they leverage their local knowledge. Asia-Pacific-focused funds managed by Asia-Pacific-based managers also tend to provide better risk-adjusted returns than all other hedge funds and significantly greater risk-adjusted returns than Asia-Pacific-focused hedge funds managed by managers based outside the region. Asia-Pacific Outperform their Global Counterparts Preqin s Hedge Fund Analyst shows that hedge funds focusing on Asia-Pacific outperformed the Preqin All-Strategies Hedge Fund benchmark in 2014, as well as over a two-, three- and five-year basis (Fig. 9). Fig. 10 shows the rolling 12-month returns of hedge funds based on the regional focus of the fund. Asia-Pacific-focused hedge funds outperformed hedge funds focused on other regions for the years ending December 2013 and December The impact of the US Federal Reserve beginning tapering its QE programme in December 2013 led to some of the drop in performance at the start of 2014, as currencies and stock markets in emerging markets fell steeply as investors prepared for US interest rates to rise, but markets subsequently rebounded as interest rates stayed low. Equity markets in countries within Asia-Pacific such as India and China led to stronger performance at the end of One example of such a fund is the Alchemy India Long-Term Fund, managed by Singapore-based Alchemy Investment Management which produced a 60.6 net return for the year 2014 and has a 12-months trailing Sharpe ratio of 2.87 (Fig. 14). The higher returns of Asia-Pacific funds have, for most of the past five years, been accompanied by increased volatility (Fig. 11). However, the volatility of Asia-Pacific-focused hedge funds has decreased significantly since November 2013, and as of January 2015, it has become the category with the least volatility. As a result of smaller fluctuations in performance over 2014, compared to other regions globally, the 12-month volatility for Asia-Pacific-focused hedge funds stands at 2.76% (31 January 2015). As markets within the region continue to mature, and if fund managers are able to successfully produce robust and consistent returns, investors which may remain cautious about investment Fig. 10: Rolling 12-Month Returns of by Regional Focus, January January Fig. 9: Performance of Asia-Pacific-Focused vs. All Net Returns 14% 6% 4% 2.17% YTD (28 Feb) 5.46% % 7.93% 2-Year Annualized % 7.74% 3-Year Annualized 5-Year Annualized Asia-Pacific- Focused All Hedge Funds in Asia-Pacific, due to concerns about risk, may start to look at these funds in greater numbers for their ability to meet portfolio objectives over long time frames. When looking at hedge fund returns on a risk-adjusted basis, we can see that Asia-Pacific-focused funds typically had a lower Sharpe ratio than all hedge funds as a whole until October 2014 (Fig. 12). The combined effect of stronger performance over most timeframes, and a drop in the amount of volatility exhibited by funds in the region, has led to Asia-Pacific-based funds, managed by fund managers located in the region, moving ahead of their all hedge funds counterparts, in terms of Sharpe ratio, since the end of Fig. 11: Rolling Volatility of by Regional Focus, January January Month Returns Asia-Pacific Europe North America Rest of World All 12-Month Volatility 6% 4% Asia-Pacific Europe North America Rest of World All - Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 5

6 Preqin Special Report: Asia-Pacific Local Knowledge Has Led to Strong Performance Fig. 13 shows a comparison between the performance of Asia- Pacific-focused hedge funds based in the region and Asia-Pacificfocused hedge funds that are managed by firms headquartered outside the region. Preqin s data shows that over the past six years, hedge funds based in Asia-Pacific have posted higher returns than their counterparts outside the region. In fact, in 2009, 2012, 2013 and 2014, Asia-Pacific-focused hedge funds based in the region outperformed their peers based overseas by more than two times. In 2011, the only year of negative performance over the past six years, the losses for both these categories were both similar (-7.5 for funds based in Asia-Pacific, and -6.86% for funds based outside the region). When looking at risk-adjusted returns, funds that focus on Asia- Pacific, that are run by managers from beyond its borders, have shown a divergence in terms of rolling three-year Sharpe ratio since the middle of 2013 from fund managers investing in Asia-Pacific that are also based there (Fig. 12). This suggests that Asia-Pacificbased managers are best placed to generate strong returns, on a risk-adjusted basis, amid burgeoning markets caused by regional economic developments. Outlook Interest in Asia-Pacific as a destination for investment has been growing in recent years, with both investors and fund managers within the region and beyond seeing profitable trading opportunities there. A favourable macro environment, increased options for investment, as well as countries such as Japan, China and India implementing expansionary fiscal and monetary policies in order to jump start economic growth, has led to increased opportunities and appetite for fund managers to launch funds focused on the Asia-Pacific region. Preqin s data shows that funds investing in Asia-Pacific have been able to generate returns above the Preqin-All Strategies Hedge Fund benchmark over recent years. Fund managers based in Asia-Pacific s borders have been particularly successful, and the local knowledge of the markets in the region has enabled them to generate both higher returns, and better risk-adjusted returns, than their counterparts investing from beyond the region. Fig. 12: Rolling Sharpe Ratio of Asia-Pacific-Focused vs. All, January January Fig. 13: Performance of Asia-Pacific-Based vs. Asia-Pacific-Focused % Three-Year Sharpe Ratio Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Asia-Pacific-Based Asia-Pacific-Focused from Outside the Region All Net Returns % 14.27% % 10.17% 7.25% 5.96% % 0.97% % YTD -7.5 (31 Jan) Asia-Pacific- Based Hedge Funds Asia-Pacific- Focused from Outside the Region Fig. 14: Top Five Performing Asia-Pacific-Based in 2014 Fund Manager Core Strategy Net Return Alchemy India Long-Term Fund Alchemy Investment Management Long/Short Equity 60.6 Merchant Commodity Fund RCMA Asset Management Commodities 59.29% Redart Focus Fund Redart Capital Long/Short Equity, ValueOriented 57.45% ArthVeda Alpha India L50 ArthVeda Fund Management Long Bias 39.09% AFC Asia Frontier Fund - CHF-A Asia Frontier Capital Long Bias 36.9 Access In-Depth Data on Top Performing Preqin s Hedge Fund Analyst features fund-level performance data for more than 11,650 hedge funds worldwide, and includes over 2,200 Asia-Pacifi c-based hedge funds. Use Hedge Fund Analyst to: Access detailed profiles of each individual fund and its manager Analyze top performing funds by core strategy View information on key contacts at each top performing fund For more information on Hedge Fund Analyst, or to arrange a demonstration, please visit: 6

7 Preqin Special Report: Asia-Pacific Institutional Investors in Asia-Pacific Within Asia-Pacific there is a diverse range of institutional investors actively investing in hedge funds, from large sovereign wealth funds such as China Investment Corporation investing billions of dollars in the asset class through to small family offices and investment companies. Using data taken from Preqin s Hedge Fund Investor Profiles database, we present some key facts about institutional investors based in Asia-Pacific, from who these investors are and where they are based, through to their allocation to the asset class and investment plans for Data Source: Preqin s Hedge Fund Investor Profiles is the industry s leading source of intelligence on institutional investors in hedge funds and features detailed profi les for over 4,800 investors worldwide, including 556 Asia-Pacific-based investors. For more information, please visit: Fig. 16: Breakdown of Institutional Investors Based in Asia- Pacific by Investor Location Fig. 15: Breakdown of Asia-Pacific-Based Hedge Fund Investor Universe by Investor Type 3% 3% 11% 9% 13% 1 13% Fig. 17: Mean Allocations of Asia-Pacific-Based Investors to by Investor Type, % Superannuation Scheme Fund of Manager Private Sector Pension Fund Asset Manager Family Office Insurance Company Wealth Manager Bank Public Pension Fund Other Source: Preqin Hedge Fund Investor Profi les 3% 3% 3% Australia Japan 11% 31% Hong Kong Singapore South Korea New Zealand China India 15% Rest of Asia-Pacific 24% Source: Preqin Hedge Fund Investor Profi les Mean Current Allocation to as a % of AUM 1 16% 14% 6% 4% % % 13.9% 13.9% 14.4% % 11.7% 11.7% % % % 5.3% % Family Office Wealth Manager Private Sector Pension Fund Endowment Plan Asset Manager Investor Type Foundation Sovereign Wealth Fund Public Pension Fund Source: Preqin Hedge Fund Investor Profi les Fig. 18: Regional Preferences of Asia-Pacific-Based Investors in Fig. 19: Strategic Preferences of Asia-Pacific-Based Investors in Proportion of Asia-Pacific-Based Investors % 66% 64% 4 33% 21% Global Asia-Pacific North America 26% 15% Europe General Preference 2015 Mandates Proportion of Asia-Pacific- Based Investors % 45% 45% 41% 33% % % Long/Short Equity Macro Multi-Strategy Fixed Income Long/Short Credit Managed Futures/CTA Event Driven Equity Market Neutral Opportunistic General Preference 2015 Mandates Regional Preferences Source: Preqin Hedge Fund Investor Profi les Strategic Preferences Source: Preqin Hedge Fund Investor Profi les 7

8 Preqin Special Report: Asia-Pacific Asia-Pacific-Based Investors Outlook on At the end of 2014, Preqin interviewed over 150 institutional investors globally to find out more about their views on how hedge funds have performed in 2014 and their outlook for In this section, which contrasts the results of this study, published in the 2015 Preqin Global Hedge Fund Report, with our interviews with Asia-Pacific-based investors, Preqin examines in more detail how far hedge funds met expectations in 2014, investor attitudes towards regulation and what these investors look for in fund managers in Dissatisfaction with Returns Increases, but Confidence Remains Unchanged One in two Asia-Pacific-based investors indicated that their hedge fund investments had met their expectations (Fig. 20). However, a large proportion (43%) of investors based in Asia-Pacific stated that their investments in the asset class had fallen short of their expectations, a higher percentage than among investors globally (34%). With Asia-Pacific-focused funds outperforming their global peers in 2014, and many investors in the region investing locally, this could indicate that Asia-Pacific-based investors are looking for higher absolute returns from their hedge funds than other investors globally. Preqin s performance benchmarks for Asia-Pacificfocused hedge funds show that these funds returned 12.7% and 18.11% in 2012 and 2013 respectively. In contrast, similar funds produced 6.01% in 2014; this relatively poor performance has not gone unnoticed by investors. Asia-Pacific Investors Seek which Can Provide Risk-Adjusted Returns with Aligned Fees Investor sentiment towards hedge funds remains largely unchanged and over the course of 2015, Asia-Pacific-based institutions look set to put more money to work in the asset class. Eighty-two percent of investors in the region indicated to Preqin that they will either maintain or increase their current level of investment in the asset class. Despite this encouraging sign of interest from the region, investors retain a cautious outlook going forwards. The risk profile of a fund was most often cited as the key factor for Asia-Pacific investors when looking for a new fund, with the majority of investors (69%) considering it a significant factor (Fig. 21). Second to risk profile, returns, liquidity and fees were all cited as equally important factors when assessing new opportunities. Despite this, only a relatively small proportion of investors (14%) indicated that their confidence in hedge funds to meet portfolio expectations had decreased following a year of what many investors deemed unsatisfactory performance. Investor Plans for Their Portfolios in % 27% Decrease Allocation to Keep Allocation to the Same Asia-Pacific-Based Investors Change in Confidence in, % 86% Increase Allocation to Reduced Confidence Fig. 20: Hedge Fund Portfolio Performance Relative to Expectations of Institutional Investors: Asia-Pacific-Based Investors vs. All Hedge Fund Investors No Change In Confidence Source: Preqin Investor Interviews, November 2014 Fig. 21: Key Factors Used by Asia-Pacific-Based Institutional Investors to Evaluate Hedge Fund Managers Proportion of Respondents % 5 43% Asia-Pacific-Based Hedge Fund Investors 57% 35% All Hedge Fund Investors Returns Have Exceeded Expectations Returns Have Met Expectations Returns Have Fallen Short of Expectations Source: Preqin Investor Interviews, November 2014 Risk Profile 69% Returns 54% Liquidity Profile 54% Fees 54% Management Experience and Background 46% Established Track Record 46% Source of Returns/Strategy 3 Transparency of Holdings 31% Client Service 23% Domicile Proportion of Respondents Source: Preqin Investor Interviews, November

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10 Preqin Special Report: Asia-Pacific March 2015 Preqin: Global Data and Intelligence With global coverage and detailed information on all aspects of the hedge fund asset class, Preqin s industry-leading Hedge Fund Online services keep you up-to-date on all the latest developments across the hedge fund universe. Source new investors for funds Find the most relevant investors, with access to detailed profiles of institutional investors actively investing in hedge funds, including insurance companies, pension funds, family offi ces, foundations, wealth managers, endowment plans, banks and more. Identify potential investment opportunities View in-depth profi les for hedge funds seeking capital, including information on investment strategy, geographic focus, structure, service providers used, sample investors, direct contact information and more. Find active fund managers in hedge funds Search for fi rms operating hedge funds. View information on key contacts, assets under management, performance history, key investment preferences, known investors, and more. Benchmark performance Identify which fund managers have the best track records with fully customizable performance benchmarks and view performance details on individual named funds and share classes. Examine fund terms and conditions Access fund-by-fund and industry level fund terms and conditions data for individual hedge funds, which provide a market overview, enabling you to see the current trends for specifi c strategies, structures, sizes, and more. View detailed profiles of service providers Search for active administrators, custodians, prime brokers, auditors and law fi rms by type and location of funds and managers serviced. Customize league tables of service providers by type, location of headquarters, and total known number of funds serviced. For more information on how Preqin s hedge fund online services can help you, please visit: If you want any further information, or would like to request a demo of our products, please contact us: New York: One Grand Central Place 60 E 42nd Street Suite 630 New York NY Tel: Fax: London: 3rd Floor Vintners Place 68 Upper Thames Street London EC4V 3BJ Tel: +44 (0) Fax: +44 (0) Singapore: One Finlayson Green #11-02 Singapore Tel: Fax: San Francisco: 1700 Montgomery Street Suite 134 San Francisco CA Tel: Fax: [email protected] Web: