By Tomoko Yamazaki and Komaki Ito
Dec. 22 (Bloomberg) -- Asian start-up hedge funds have returned an average 22 percent this year, beating global peers and boosting their chances of attracting investors in 2010.
Galaxy China Deep Value Fund and Wisdom of Japan Fund are among new offerings measured by Singapore-based hedge-fund consultant GFIA Pte that helped start-ups outperform an 18 percent average gain through November for the Eurekahedge Hedge Fund Index of more than 2,000 funds globally. The outperformance may help the region’s start-ups overcome investor reticence that curbed growth in assets managed this year.
“The continuing challenge throughout 2010 for start-up hedge funds will be raising capital, however, it is generally expected that it will be more accessible than in 2009,” said Skip Hashimoto, the Japan representative at Ogier Fiduciary Services in Tokyo, which provides corporate services to hedge funds. “Funds of funds based in this region are aggressively seeking out new Asia-based start-up opportunities.”
Managers of Asia-focused new funds raised just $3.06 billion through November this year, compared with $20 billion attracted by global start-ups and $3.8 billion by Asian start- ups in 2008, according to Eurekahedge Pte.
The year-to-October average return of 27 start-up hedge funds in Asia excluding Japan that commenced since September 2008 and have more than six months of track record totaled 29 percent, according to data provided by GFIA. For Japan, 12 new funds yielded an average return of 6.5 percent, the firm said.
Asia Comeback
Among the strategies likely to be favored by new hedge funds next year are event driven, which takes advantage of corporate events such as mergers and acquisitions, and trading related, with a focus on investing across Asia, according to GFIA. Geographically, Greater China-focused funds are likely to be prevalent, reflecting demand for wagers on China, the world’s fastest-growing major economy.
Galaxy Asset Management (HK) Ltd., which invests in Chinese equities, manages one of this year’s best-performing start-ups. Its $30 million Galaxy China Deep Value Fund has quadrupled since the September 2008 inception, investing in “deep value stocks that got killed in the financial crisis,” said Joe Chan, a former Morgan Stanley managing director and Galaxy founder.
In Japan, Epic Partners Investments Co.’s Wisdom of Japan Fund, which employs a so-called market-neutral strategy, has returned more than 10 percent through November since inception in March, according to the firm. The fund, which is run by Tadashi Mukai, grew in size to 2.5 billion yen ($27 million) from 400 million yen at the start, according to Mukai.
Under the Radar
The fund has raised money mainly through Japanese high-net- worth individuals and pension funds and expects assets to increase to 4 billion yen in January, said Mukai in a telephone interview on Dec. 9. Mukai was the top performer in 2007 among Japan-focused funds that employ the strategy that seeks to make money regardless of the market’s direction.
Akito Fund, a Japan-focused hedge fund set up by former UBS AG bankers, has returned more than 26 percent since its July start and has managed to boost assets to 7.5 billion yen from 1.4 billion yen at inception by raising money mainly from foreign investors, according to Koichiro Yamaguchi and Tetsuya Hamano who run the fund.
“Managers might not like the idea of launching with a smaller amount of money, but the advantage of that is that you find out all your mistakes when fewer people are looking,” said Peter Douglas, principal of GFIA.
As existing funds take in less money to limit their trading capacity in the wake of global credit crisis, start-ups are set to benefit from investors seeking to take a slice of Asia’s economic growth, Douglas said.
Lower Closes
Brevan Howard Asset Management LLP, Europe’s largest hedge- fund firm, limited the flow of money into three funds as client assets approached last year’s high, according to people familiar with the matter. Paul Tudor Jones’s Tudor BVI and Lansdowne Partners LP’s $9.3 billion Lansdowne UK funds restricted inflows this year after replacing money pulled by investors in 2008.
In Asia, Riley Paterson Investment Management Pte said it closed its Asian hedge fund to investors after assets under management swelled 15-fold to $300 million.
Economic growth in Asia will probably accelerate to 5.8 percent next year from 2.8 percent this year, the International Monetary Fund said in October. That compares with forecast growth of 1.25 percent in 2010 in the Group of Seven economies.
“You’ve got managers closing at much lower levels, you’ve got a lot more people coming back to the region, and a wave of money flowing back to the Asian hedge-fund industry, which is good news for start-ups,” Douglas said. “So long as they produce reasonable performance numbers, their life will get much easier through next year or by the end of next year and most of the funds will be pleased with themselves that they launched when they did.”
To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net
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