Asia hedge funds looking for institutional love

Asian institutional wealth holds the key to growing the local hedge fund industry that has relied heavily on foreign inflows, an industry body said last Wednesday. With the exception of Singapore, regional institutional investors have mostly shied away from pouring money into alternative investment managers, though they have been seen to provide greater downside protection than equities.

Hedge fund indices dropped 20 percent in 2008, compared with the 40 percent slide in global stocks.

"We are quite fortunate in Asia because growth rates will be higher in the next one or two decades, and we will all get a lift from that. Also, wealth is being accumulated both by individuals and institutions," Christophe Lee, chairman of the Hong Kong chapter of the Alternative Investment Management Association (AIMA) told the Reuters Private Equity and Hedge Funds Summit.

"We have to find a way to put those factors together. That's how American and European managers have grown ... That's how a Fidelity got to be so big," Lee said, referring to Boston-based Fidelity Investments, the world's biggest mutual fund company.

"Asia, and particularly the hedge fund industry, has been very reliant on foreign capital," he added.

The Asian hedge fund industry fell 28 percent to $126 billion in 2008, according to Eurekahedge data.

Having learnt their lesson from the financial crises of 1997-98, major Asian countries have been sitting on huge reserves, mostly invested in low-yielding bonds and U.S. Treasuries.

"The irony is, the West is broke and we are sitting on cash but still there are very good people in Asia, with fantastic experience, starved for cash," said Lee, who is also chief executive of Hong Kong-based SHK Fund Management.

Following a year of record redemptions, investors globally are sitting on $294 billion in cash with $82 billion of that likely to be re-invested in the next six months, according to research from Deutsche Bank.

Fullerton Fund Management, a unit of Singapore state investors Temasek TEM.UL said on Monday it will allocate more money to hedge funds this year.

Singapore has been active in developing a home-grown hedge fund industry.

In the United States and Europe, big institutions such as university endowments and retirement funds like Calpers are key sources of capital for hedge funds and private equity.

Lee said AIMA, which had 108 hedge fund members in Hong Kong at the end of 2008, intends to work with institutions in Hong Kong and China, including life insurers and pension funds, to raise their awareness of alternative investment managers.

"It will take some time but they will come around to it ... this is a great opportunity for Asia," Lee said.

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