Tougher times for Asia-Pacific hedge funds
By EMILYN YAP
(SINGAPORE) Asia-Pacific hedge funds are bracing for tougher times, as short-selling curbs and tighter credit combine to hit the industry.
While the hedge fund industry is unlikely to crash, insiders reckon there could be more redemptions and fund closures in the months ahead.
‘Life is becoming more difficult (for hedge funds),’ said Peter Douglas, principal of Singapore-based hedge fund consultancy GFIA.
Hedge funds generally aim for absolute returns in all types of market conditions and employ various strategies to achieve this. Many in the region are long/short equity players, meaning that they take long and short positions in shares.
But new short-selling restrictions are tying the hands of these hedge funds. First imposed in the UK and US on certain stocks as the financial turmoil drove markets down, the ban has also spread to Australia and Taiwan.
The impact of such restrictions is certainly negative, said Mr Douglas. ‘Short-sellers are useful providers of liquidity, they are important to price discovery and they make it much easier to manage risks.’
The short-selling ban could lead to more redemptions and, in turn, more closures among Asian hedge funds. ‘Markets are becoming less efficient. That means that sophisticated strategies are finding it more difficult to make money consistently,’ Mr Douglas said.
Hedge funds are also under redemption pressure because of tighter credit conditions, said a manager in the industry. The funds themselves may not use leveraging techniques, but ‘the underlying investor base is often leveraged’, he explained.
And it’s not just hedge funds, he added; the entire asset management industry is facing redemption risk because markets have performed poorly.
Hedge funds in the region have been coming under pressure. According to alternative investment data provider Eurekahedge, those in Singapore, for instance, experienced net asset outflows of US$640 million from June to August. This was a sharp fall from net asset inflows of US$1.47 billion in the same period last year.
While conditions have turned more challenging for hedge funds in the region, some industry players believe the eventual impact could be limited.
The short-selling restrictions, for instance, are unlikely to hit hard because many funds do not utilise that strategy to a large extent. ‘It’s not so easy to go heavily short in Asia because of the (low) liquidity and (existing) restrictions in the markets,’ said HSBC’s head of alternative fund services Wout Kalis.
The hedge fund manager who spoke to BT also pointed out other ways of shorting the market - through the use of options, futures and other derivatives, for instance. Summing up sentiment in the industry, he said: ‘The hedge fund model ain’t bust.’
Source : Business Times - 25 Sept 2008
Singapore Property - Buy, Sell, Rent, Invest
Mindy Yong
(+65)91002985
mindy@mindyyong.com ( email me )
Microsoft launches BizSpark to boost technology start-ups »« Singapore’s biggest employer still hiring
