8 Feb 2011
Two recent surveys show interesting trends that are having a major impact on the complexion of the global hedge fund industry. One trend concerns the continued rise of UCITS products embracing hedge fund strategies. The other is the surprisingly moribund conditions surrounding the development of Asian hedge funds.
On UCITS III funds, a Deutsche Bank survey of investors shows that assets are expected to surge by more than $185 billion during 2011. Taking a current estimate of $140 billion in assets under management, according to Deutsche Bank Hedge Fund Capital Group, the survey indicates the size of the UCITS III absolute return industry will more than double in the year ahead. The wave of money is expected to see allocations to all UCITS strategies remaining high with a marked preference for long/short equity, emerging market and event driven strategies.
Deutsche Bank surveyed 184 investors, representing more than $2.1 trillion in assets. The respondents included wealth managers, insurance companies, fund of funds, family offices and high net worth individuals. Each investor, on average expects to have more than a fifth of their total investments in UCITS III compliant funds by 2013. Driving the evolution is investors’ preference for enhanced liquidity, more regulatory oversight and greater transparency.
High returns, it seems, are not the most important consideration for investors: only 21% of investors surveyed believe the most important way to assess a UCITS III absolute return manager is investment performance. Yet it is encouraging that 70% of investors in the survey expressed a willingness to invest in managers with assets of just $50 million. This bodes well for new launches getting support and for innovation being encouraged in a fast expanding sector.
But just as UCITS is pushing all before it, the Asian future for hedge funds looks lackluster. Though Asia may be more financially sound than many western economies, it was not sparred the pain of the worldwide sell-off. And, surprisingly, perhaps, Asian markets haven’t rebounded with the same verve as some key developed markets.
This has taken a toll on hedge fund launches. New research from GFIA, a Singapore-incorporated financial advisor, shows that launches, which peaked around 2005, continue to come down. More encouraging is that fund closures in Asia, which peaked in late 2008, have since begun to reduce. But overall GFIA says it is clear that the Asian industry’s net rate of growth has slowed.
GFIA has also found that the Asian hedge fund universe has become more homogenous. Correlations between strategies were low before November 2007 but picked up significantly subsequently, while equity long/short funds in particular became more correlated with each other after October 2007.
Though the Asian hedge fund industry has seen the number of funds double since 2003, GFIA notes that there has been a measurable change in its characteristics. For one thing, it is growing more slowly. For another, it has become riskier and more correlated, and in some strategies more directional. A bright dawn for hedge funds in Asia a couple of years ago now looks less so.
But there are several reasons to think that Asia can mount a comeback. Its sovereign investors are the biggest in the world and continue to expand reserves. What’s more, Asian equity markets will continue to grow in size, as will its sovereign and private credit markets. Finally, strong economic growth continues on track. It is a fair bet that tapping into these opportunities will see new generation of Asian managers emerge before long.
On UCITS III funds, a Deutsche Bank survey of investors shows that assets are expected to surge by more than $185 billion during 2011. Taking a current estimate of $140 billion in assets under management, according to Deutsche Bank Hedge Fund Capital Group, the survey indicates the size of the UCITS III absolute return industry will more than double in the year ahead. The wave of money is expected to see allocations to all UCITS strategies remaining high with a marked preference for long/short equity, emerging market and event driven strategies.
Deutsche Bank surveyed 184 investors, representing more than $2.1 trillion in assets. The respondents included wealth managers, insurance companies, fund of funds, family offices and high net worth individuals. Each investor, on average expects to have more than a fifth of their total investments in UCITS III compliant funds by 2013. Driving the evolution is investors’ preference for enhanced liquidity, more regulatory oversight and greater transparency.
High returns, it seems, are not the most important consideration for investors: only 21% of investors surveyed believe the most important way to assess a UCITS III absolute return manager is investment performance. Yet it is encouraging that 70% of investors in the survey expressed a willingness to invest in managers with assets of just $50 million. This bodes well for new launches getting support and for innovation being encouraged in a fast expanding sector.
But just as UCITS is pushing all before it, the Asian future for hedge funds looks lackluster. Though Asia may be more financially sound than many western economies, it was not sparred the pain of the worldwide sell-off. And, surprisingly, perhaps, Asian markets haven’t rebounded with the same verve as some key developed markets.
This has taken a toll on hedge fund launches. New research from GFIA, a Singapore-incorporated financial advisor, shows that launches, which peaked around 2005, continue to come down. More encouraging is that fund closures in Asia, which peaked in late 2008, have since begun to reduce. But overall GFIA says it is clear that the Asian industry’s net rate of growth has slowed.
GFIA has also found that the Asian hedge fund universe has become more homogenous. Correlations between strategies were low before November 2007 but picked up significantly subsequently, while equity long/short funds in particular became more correlated with each other after October 2007.
Though the Asian hedge fund industry has seen the number of funds double since 2003, GFIA notes that there has been a measurable change in its characteristics. For one thing, it is growing more slowly. For another, it has become riskier and more correlated, and in some strategies more directional. A bright dawn for hedge funds in Asia a couple of years ago now looks less so.
But there are several reasons to think that Asia can mount a comeback. Its sovereign investors are the biggest in the world and continue to expand reserves. What’s more, Asian equity markets will continue to grow in size, as will its sovereign and private credit markets. Finally, strong economic growth continues on track. It is a fair bet that tapping into these opportunities will see new generation of Asian managers emerge before long.
