Asia Hedge Funds ….. The past few months have been “exciting” for hedge funds, especially those located in Asia. Hedge funds in Asia ex Japan delivered that best returns globally with a growth rate of 8.3% in 2015. Japanese hedge funds gained 6.47%, according to Eurekahedge Report, reviewed by ValueWalk.
Asia ex-Japan hedge funds delivered 1.45% gains while Japanese hedge funds achieved 0.27% gains last month amid the poor performance of the global equity markets.
Asian hedge funds recorded gains of $0.3 billion in December. Excluding Japan, their performance-based gains were $0.4 billion.
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Asian hedge funds AUM
The assets under management (AUM) of Asian hedge funds climbed in the fourth quarter despite the market volatility last year. The region’s hedge fund industry had a total AUM $171 billion, up by $9.5 billion. Currently, there are $1,423 hedge funds in the area. Recent reports put total industry assets at around $3 trillion making Asia close to half of that number.
The report showed that Asia ex-Japan hedge funds’ assets by the end of 2015 increased 0.49% to $155.1 billion from $154 billion, and net flows were $0.8 billion.
The AUM gains among Asian hedge funds excluding Japanese hedge funds included $5.6 billion attributed to investor inflows and $5.1 billion from performance-based gains.
The Eurekahedge report noted that the investment managers’ allocations and exposures in the financials, healthcare, IT, and consumer discretionary contributed to their positive performance.
The report indicated that Australia/ New Zealand and Greater China-focused hedge fund managers “performed well” year-to-date despite the economic turmoil in the countries.
The hedge fund industry in Asia achieved unprecedented growth in 2013. The asset base in the region climbed $21.1 billion (the highest since 2007) due to the global economic recovery.
However, the growth rate slowed the following years as net flows in the region fell despite performance-driven gains, sustained outperformance of the equity markets particular from India and China in the latter part of 2014.
During the third quarter of 2015, hedge fund managers were wiping out gains made early in the year. However, the AUM of the hedge fund industry still climbed by $9.5 billion as of November 2015 on a year-to-date basis despite the market turmoil.
Asia Hedge Funds launches and closures
According to the Eurekahedge Report, the launching and closure trends in the entire industry vary greatly when compared to the pre and post financial crisis era.
In recent years, the launching activity in the industry was slowing. In 2012, there were 149 hedge fund launches, 117 launches in 2014 and 72 launches in 2015. The number declined due to the increasing regulatory costs.
In Asia, the hedge fund launches were muted lately due to increasing competition for a limited pool of investor assets, which resulted in a more difficult capital raising environment for new entrants especially those with smaller asset base. The chart below demonstrates some of these stats.
Last month, the Asset Management Association of China (AMAC) reported that the hedge fund launches in China surged rapidly as larger hedge fund managers have “gone incommunicado” or “missing” amid a government crackdown.
As of December 2016, AMAC said there were 24,625 hedge funds in the country, an increase of 44% from almost 17,000 in January of the same.
The main reason for this dramatic increase was the a rule that made it easy for individuals to obtain a license to operate a hedge fund as China sought to improve its market liquidity and boost institutional participation in the local markets. Eurekahedge stats confirm this noting:
The breakdown of the Asian hedge fund industry by fund size displays interesting trends emerging in the industry. The percentage of funds managing up to US$100 million in assets has increased by 7.1% since 2007 – peaking briefly at 79.9% in 2010 on the back of renewed launch activity in the region which saw a number of small hedge funds enter the industry. The proportion of hedge funds managing below US$50 million has increased by 12.0% since 2007 indicating a sizeable proportion of smaller hedge fund startups in Asia. Within this bracket, managers overseeing AUM between US$20 million to US$50 million alone saw an increase in market share of 9.4% within this bracket. On the whole, the percentage of total industry AUM up to US$500 million overseen by managers has increased from a market share of 93.8% in 2007 to 96.4% in 2015 while the percentage of total industry AUM in excess of US$500 million overseen by managers declined by 2.6%.The efforts of the People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) to revive its struggling financial markets over the past year failed.
The Chinese regulators recently banned short-selling, reduced margin ratios, prohibited insiders from selling large blocks of stocks, and prosecuted several hedge fund managers for betting against the market. China also introduced a circuit breaker system to limit stock market losses, but it was forced to suspend it after a huge market selloff.
A recent report suggested the Chinese regulators may ban new investment companies from registering in Beijing. The CSRC is current working to improve oversight of hedge funds and other entities.
Meanwhile, Asia Hedge Funds are already “lowering the gates” and allowing quicker withdrawals for investors, which could end up being a bad move as Chinese equity markets crash and investors look to move cash abroad at any price.