Asian Hedge Funds

1. Why are Asian hedge fund assets small relative to GDP and local savings rates?
Firstly, financial markets in Asia are less mature than their US or European equivalents. This results in a smaller range of securities and instruments that a hedge fund can access and utilize in the context of a hedge fund strategy. For example, access to borrow in the China A-share market is limited, cutting off a significant opportunity set/risk management tool for a large number of managers. While this type of exposure can be accessed elsewhere (i.e. H-shares, US-listed ADRs), the regulatory environment in the A-share market effectively limits the amount of AUM that China-focused L/S managers can optimally run in this space. Furthermore, credit markets in Asia are less developed than their US and European counterparts where CMBS, RMBS, ABS and corporate loans and bonds are all of significant breadth and depth. All in all, financial markets in Asia do not offer the same broad range of building blocks as peers in the US and Europe, restricting the range of hedge fund strategies that can be operated at meaningful size (more than $1bn).