I, among many of my hedge fund friends, have been looking closely at the emerging market. After sitting through so many panel discussions and conferences, I thought, how could one really get a feel of how it’s like without visiting the area and talking to the locals? Now back from a two-weeks trip to HongKong, I will provide some insights here.
In this first post, I will start with some general information about hedge fund industry in Asia.
Geographic: 70% of hedge funds are incorporpated in HK, 20% in Singapore and remaining 10% scattered around. Most people may think HK securities regulations are less strict than the ones in Singapore, but the reality is just the opposite. For this reason, investors are more interested in HK funds because they’re better protected by the system. Naturally fund managers go where the investors go.
Size: average AUM of funds is $100million. One thing I noticed is the size of start-up funds. Here in the states, funds may start at $1million, sometimes even less. In Asia, typical start-up size will be $25million instead, a much higher threashold. I think this is partly due to the supporting system which I will discuss next.
Supporting system: “players are very defined here.” my friend at Morgan Stanley told me. You don’t see any mini-prime/introductory brokers, Big Four is your only choice for audit/tax need, and investors are only interested in funds with a group of service providers that are internationally known. This high-profile only system increases the entry barriers for fund managers - if you can’t raise the initial $25million+, you’d better forget about having your own fund. The operating costs will take away all the gains.
Market confidence: the public has a VERY STRONG confidence in the economy. It’s like the crisis never happens. Yes, you see a brief panicking period back in 2008 when the crisis started in the states and spreaded around the world, but economy jumped right back up. A classic V shape. Investments and spending are huge…fund managers are very aggressive…optimism is what you see across-the-board. This is not to say there are no issues, there are. Income dispersion, social tension, inflation pressure, but most importantly, people are spending, and they have a deep pocket.
Investment opportunity: most fund managers are struggling with investment selections. Projects are priced for the growth, so you will need to understand the growth reality. It’s much more likely for you to find a bargain here in the states than Asia.