Don’t miss a trick
Funds of hedge funds are dominated by investment
in developed market hedge funds at a time when
the Asian macro story has plenty to offer the longterm,
risk-aware investor
BY CHRIS MANSER,
GLOBAL HEAD, FUNDS
OF HEDGE FUNDS, AXA
INVESTMENT MANAGERS
There is an old Chinese
proverb that suggests: “He
who ignores the rising tide
shall rest forever with the
fishes”. At the risk of seeming
irrelevant, it is perhaps
advice that UK funds
of hedge funds (FOHFs)
investors might do well to
heed. While a bias towards
the more developed US
and European hedge fund
markets is reasonable and
expected, the dominance of
these markets in UK portfolios
seems to ignore, or
even dismiss, Asian hedge
funds and the potential
rewards available.
Few would disagree
that the Asian hedge fund
industry lags its more
developed European and
US counterparts. But over
recent years, the sector has
undergone tremendous
development and maturity,
making ground on its
global peers in terms of
size, sophistication, diversity
and robustness.
l Double-edged
Key to this growth is the
fundamental dichotomy
that is presented by the
Asian region.
On the one hand, it
is characterised by robust
economic growth, burgeoning
cities, and rising
middle class wealth. Yet
on the other, it is a region
still finding its feet, the
relative immaturity of its
infrastructure often out of
sync with the breakneck
pace of its economic expansion.
This inefficiency is
what makes Asian hedge
funds such an attractive
proposition, especially as
such arbitrage opportunities
are increasingly rare
within saturated US and
European markets.
That said, the past reticence
of UK FOHF investors
to allocate towards Asia
has not been unjustified.
Questionable standards of
governance, inhospitable
regulatory regimes and a
lack of transparency, have
all been reasonable criticisms
levelled against the
Asian hedge fund industry.
At the same time, a lack
of market sophistication
and operational infrastructure
meant there were few
credible hedge funds available
and even fewer able
to boast critical mass or a
reasonable track record.
l Growing influence
But this unsophisticated
picture is a far cry from
the Asian hedge fund
industry of today. The
globalisation of markets
over the past ten years
has seen the Asian region
emerge as an economic
power. Growth has been
spectacular, far outpacing
that of more developed
economies, supported by
increasingly robust economic
fundamentals.
At the same time, the liberalisation
of Asian economies,
opening them up to
global trade, has prompted
a huge influx of foreign
How long the drive...
DECEMBER 2008 [www.portfolio-adviser.com] PORTFOLIO ADVISER
ALTERNATIVES FUNDS OF HEDGE FUNDS
Funds of hedge funds
Eurekahedge Asia Pacific FOFs Index
100
%
50
%
200
150
Rate of asset growth
60
40
20
-20
-50
0
0
Asia Pacific funds
of funds sector avg
Dec ’99 Aug ’01 Apr ’03 Dec ’04 Aug ’06 Apr ’08
To Oct’08. Source: Eurekahedge
-40
Asia ex Jap Japan
Europe
To Jun ’08. Source: Eurekahedge, Axa IM
DJ Asia Pacific
ex Japan Index
Latin Am
’06
’07
’08*
Nth America
47
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