Hedge Funds Coming To Singapore

Hedge Funds Coming To Singapore

Source: The Business Times, Author: OH BOON PING, 14/8/2009

In the past three months alone, hedge fund managers told Business Times, they have seen a spike in the number of on-site visits from investors and requests for due diligence on individual securities.

Meanwhile, an Asian dedicated fund of funds recently won a US$400 million Asian mandate which is expected to find its way into the assets of single managers, sources told BT.

'I had met seven fund representatives from the States and one from Australia over the past three weeks, and they were interested in our fund's expertise in S and H shares,' said Moh Tze Yang of A3 Capital Group. 'We have not had previous business dealings with Western funds, save for several long-term European partners.'

Gavin Tan, chief operating officer of Singapore-based Paddington Asset Management, sees new demand from US investors, while John Tilney of UK-based hedge fund Armajaro pointed to 'the innate strength of Asian economies' as a big talking point among commodity players.

'Where in the past Asia had been a footnote, now China and India are seen as the engine to pull the world out of recession, and US investors are forced to understand and invest in the region,' Mr Tan added.

According to Alternative Investment Management Association (AIMA), over 30 new funds have already been launched this year, with a couple in excess of US$100 million at launch.

'The pipeline of investors looks strong, with a steady stream of global allocators interviewing Asian managers over recent months, suggesting a strong appetite to invest later in the year after completing assessment and due diligence,' said council member Peter Douglas.

Western investors appear eager to ride on the Asia equity story, and are prepared to take on more risk to reap the potentially high asset returns here.
This is in contrast to early this year, when managers of funds of hedge funds were sitting on cash weightings of 35-40 per cent, while single managers were on similarly high cash levels.

The surge in interest has come with Asian bourses posting sharp rallies of late driven by a surge of liquidity in the market. Asian stocks recently punched to a near 11-month high, on the strength of resource-related shares.

Meanwhile, figures from Hedge Fund Research show that net outflow in Asia ex-Japan slowed to US$1 billion in Q2 from US$2.1 billion three months earlier, while the size of the funds' assets under management also steadily rose from US$26.9 billion at end-2008 to US$29.2 billion in the second quarter of this year.

Although the recent market rally in Asia could have been a consequence of single hedge funds deploying their cash and raising their long positions, funds of funds, however, stayed very much out of it.

That appears to be changing now, even though observers urge caution, citing a possible correction in the coming months.

'Western hedge fund managers who are coming here now to make a quick buck may find themselves caught at the back end of the rally,' said Mr Moh.

Plus, fundamentals are still weak while valuations remain unattractive in some markets. For example, Shanghai trades at a price-earnings multiple of about 25 times, while Hong Kong is about 18 times. Such pricing may be deemed expensive as underlying financials have substantially weakened from the pre-2007 levels.

'We believe, however, that funds with a longer- term view stand to benefit as the long-term trend will be positive with fluctuations in between,' said Mr Moh.
Also, the growing interest in Asia-focused funds could add new buzz to the Singapore financial landscape, which has increasingly seen more hedge fund set-ups here.
To date, there are 159 players here - up from 133 in 2006, while the size of assets under management (AUM) has grown to US$14.6 billion from US$12.4 billion three years ago.

As a regional base for hedge funds, Singapore continues to lead in Asia, with Hong Kong being the only real competitor.

'My sense is that Singapore is making real headway, given the easier regulatory environment for hedge fund start-ups than Hong Kong,' said Mr Tan.
Compared with Hong Kong, Singapore is also a cheaper place to do business as rental costs and staff costs are lower.

There is also availability of human resource talent - skills are readily available for front- and back-office operations - while the increased volatility of the last few years has convinced investors looking for Asian exposure of the need to have managers and analysts 'on the ground' in Asia.

Plus, recent tax and secrecy issues in Switzerland have resulted in assets flowing to Singapore as an alternative place for wealth management - all of which means more hedge funds may set up operations here.

'Ten years ago, Asian hedge fund mandates were often managed from London or New York; now, this is an exception. To compete properly, the fund will have to have operations in Asia and this too will be good for the industry in Singapore,' said Mr Tan.

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