The Asia-Pacific hedge fund industry reached $145bn in assets under management at the end of 2014, up from $112bn as of December 2013. Preqin has analyzed the growth of this market within the global hedge fund community in our latest report, and other key findings include:
- Three Asia-Pacific countries rank in the top 10 countries globally by hedge fund assets under management – Hong Kong, Australia and Singapore.
- Asia-Pacific hedge funds have consistently outperformed the wider hedge fund community, posting higher returns over 2014, and on a 2-year, 3-year and a 5-year annualized basis.
- Asia-Pacific-focused hedge funds have returned 11.91% on an annualized basis over the past three years.
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 30%. 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 2014.
Overview of Asia-Pacific Hedge Funds
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-Pacifi c-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 2014.
Hong Kong, Australia and Singapore Are the Established Centres for Hedge Funds 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-Pacific focused 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 42% headquartered in Europe and 2% 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; 62% of funds based within Asia-Pacific utilize an equity-based 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-Pacifi c-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; 12% of funds investing in Asia-Pacific from outside the region are structured as UCITS funds.
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 2010. 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 2014.
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 Hedge Funds 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 fi ve-year basis (Fig. 9).
Fig. 10 shows the rolling 12-month returns of hedge