Markets

Hedge funds woo institutional investors

By Netty Ismail (China Daily)
Updated: 2010-11-30 10:16

SINGAPORE - Hedge funds are wooing institutional investors in China, the world's fastest-growing major economy, as managers struggle to raise assets, according to the industry's largest trade group.

"Over time, China will invest more overseas," said Christopher Lee, chairman of the Alternative Investment Management Association (AIMA)'s Hong Kong and mainland chapter. "In their overseas investments, we hope they will consider hedge funds as one of their components."

AIMA introduced a Chinese translation of its global hedge fund guide for institutional investors this month.

The Chinese version of "AIMA's Roadmap to Hedge Funds," which includes information about the industry's performance and strategies, aims to help regulators and investors understand the funds and dispel misconceptions about the industry.

"We want to work with them over time," Lee said. "It's not an imminent thing."

The amount of money that Chinese institutions have put into hedge funds is currently "minimal" because of overseas investment restrictions, Lee said in an interview in Singapore on Friday.

China Investment Corp, the nation's $300 billion sovereign wealth fund, is already investing in hedge funds, Chairman Lou Jiwei said in August last year.

Singapore-based Solaris Asset Management is starting a hedge fund with money from investors in China, Director Thomas Tey, former head of equities derivatives at Oversea-Chinese Banking Corp, said last month.

The manager aims to grow the fund to S$100 million ($76 million) by the end of next year, targeting investors in Asia, as raising assets in the United States and Europe is "very, very tough," Tey said.

The US will remain the biggest source of capital for the hedge-fund industry, and the pool of money will grow as pension funds seek "diversification and downside protection" from alternative investments, Lee said.

The tough asset-raising environment will remain the biggest challenge for smaller managers, Lee said. The proportion of Asian hedge-fund managers overseeing less than $50 million has grown to 66 percent of the industry, from 57 percent two years ago, Singapore-based Eurekahedge Pte said in September.

Almost all of the $23 billion put into hedge funds during the first half of the year went to those with more than $5 billion, Chicago-based Hedge Fund Research Inc said on Sept 15. Such funds account for 60 percent of the industry's $1.6 trillion of assets.

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There will be a "higher concentration of assets," Lee said.

About 25 of the biggest global hedge-fund firms are seeking to expand in Asia, the world's fastest-growing region, Lee said, citing a Credit Suisse Group AG report.

About 75 percent of the top 100 global hedge funds, ranked by Alpha Magazine based on assets managed, will likely have a presence in Asia, Lee said. About 50 of these firms already have operations in the region, he said, citing the report by the Zurich-based bank's prime brokerage unit.

Global managers such as New York-based Soros Fund Management LLC, founded by billionaire George Soros, and London's Algebris Investments LLP are establishing presences in Asia for the first time. Others such as Fortress Investment Group LLC are returning as the region's economic growth outpaces the rest of the world.

The Asian industry still "has a lot going for it," Lee said.

Bloomberg News