More than 70 Asia hedge funds have shut down this year and more are heading toward oblivion, steadily withering in the drought of investor interest. As they do, billions of dollars in business for the region’s bankers and bourses are at risk.By Nishant Kumar to Reuters
(Reuters) – The Asia hedge fund run by Howard Wong and Rajesh Ranganathan has produced returns nearly four times better than its peers this year, with an experienced team that over the last decade has notched up some of the industry’s best performance numbers.
And yet, Doric Capital is struggling to drum up interest in its $44 million fund, forcing one of Asia’s oldest hedge funds to give up its office overlooking the Hong Kong governor’s mansion for much smaller, humbler digs as it cuts costs.
“We have done our job well,” Ranganathan, 37, declared as guests sipped sangria at an office-warming party. “We are now waiting for the investors to come.”
He may have a long wait.
Investors are largely avoiding Asia’s fledgling hedge fund sector, in part because of mediocre returns at many funds as they grapple with slowing economies and market volatility.
But even solid outperformers like Doric cannot get large institutions to commit money and are trapped in a Catch-22: They are mostly too small to attract the big players, but need big investors to grow to a decent size.
Asia’s hedge funds are now managing just $144 billion, a nearly 30 percent drop from 2007, estimates from industry tracker AsiaHedge show. Outside of Asia, however, more than 8,000 funds are managing a record $2 trillion-plus, up from about $1.8 trillion.
“From an asset allocator point of view, I think more and more hedge funds locally are becoming uninvestable,” said Ronnie Wu, chief investment officer at Gottex Penjing Asset Management.
A regional exodus will be a particular blow to prime brokers that clear trades and make loans to funds, including Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) and Credit Suisse Group AG (CSGN.VX), ranked Asia’s top three prime brokers by AsiaHedge.
The problems began in the wreckage of the post-Lehman financial crisis, and have snowballed since.
After 2008, wealthy individuals and family offices moved their money away from hedge funds to safer vehicles. Funds of hedge funds, which allocate money to hedge fund and private equity firms, were crushed by the crisis as big investors began to cut out costly middlemen.
The result was a double-whammy for small and mid-sized players that make up the bulk of Asia’s 1,000 or so hedge funds.
Not only did their traditional sources of investment funds dry up, but because of their size they are shunned by pension funds and endowments, which have taken over as the industry’s primary source of capital. These types of institutional investors prefer to put their money with larger players.