Singaporean wealth fund

Singaporean wealth fund joins £1bn airport talks

THE Singaporean sovereign wealth fund is thought to be set to join Spanish infrastructure firm Ferrovial and Australian bank Macquarie in buying Aberdeen and Glasgow airports as part of a £1 billion deal.

Sources close to the talks suggest that a deal could be announced early next week which would see Heathrow Airport Holdings (HAH) sell the two Scottish airports along with its Southampton site.

Although Ferrovial and Macquarie have previously been linked to a deal for the airports, according to a report yesterday the Singapore sovereign fund GIC is also looking to take an equity stake as part of an agreement.

All parties declined to comment on the reports.

Ferrovial has a 25 per cent stake in HAH and is its largest shareholder alongside investors including Alinda Capital Partners, China Investment Corporation and the Universities Superannuation Scheme. GIC also holds a stake in the Spanish firm.

Ferrovial was reported to have made an £800 million offer for the three airports in February.

The sale of the three regional airports would leave HAH with just Heathrow, the UK’s busiest and the world’s third-busiest airport. Heathrow accounts for 95 per cent of HAH’s annual profit.

HAH would then be free to focus on its plan to gain government approval to build a third runway at Heathrow, an issue which has been at the centre of a long-running political tussle.

The three regional airports were put up for sale by HAH in August, when the group said it hoped to conclude a transaction by the end of 2014.

The sale of Aberdeen and Glasgow would mean all three of Scotland’s main airports will have changed hands in recent years after Edinburgh was sold in 2012 to Global Infrastructure Partners in an £807m deal.

That sale was forced by the Competition Commission, which ordered BAA to offload either Edinburgh or Glasgow over monopoly concerns.

BAA also sold Gatwick and Stansted airports as part of the commission’s investigation, leaving the renamed Heathrow Airport Holdings with four airports. Global Infrastructure Partners bought Gatwick in 2009 for £1.5bn and Stansted was sold for £1.5bn to the Manchester Airport Group.

Earlier this month Aberdeen and Glasgow airports announced year-on-year growth of 8.8 per cent and 4.9 per cent respectively.

Glasgow saw a total of 782,000 passengers pass through its terminals in August, its 19th consecutive month of reported year-on-year growth.

Aberdeen said it handled 339,656 passengers during the month with international passengers up by 18.1 per cent and helicopter passengers rising by 5.2 per cent.

For the year to date, passenger numbers at Aberdeen are up 8 per cent on last year, better than forecast.

http://www.scotsman.com/

MFN Fund Services Back from Summer Holiday

MFN Fund Services Back from Summer Holiday

We look forward to assisting your needs.

MJ Hudson launches in Hong Kong

Funds boutique MJ Hudson launches in Hong Kong amidst three-strong promos round

The office will be led by new lateral partner hire Simon Fraser, who has joined MJ Hudson from Ogier where he headed its private client offering since 2002. Prior to joining Ogier he spent more than a decade working in Hong Kong.

Fraser will work alongside existing MJ Hudson corporate lawyer Hiren Patel, who is heading up the firm’s Asia practice and leading expansion into the region.

Managing partner said that the office launch was a response to demand from the firm’s clients – primarily hedge funds, private equity houses and property funds which are increasingly opening in Hong Kong.

Having finally secured a licence to practice in the jurisdiction, which took about four months, the firm now plans to bulk up the office with more lateral hire partners over the next two years.

The firm’s Hong Kong launch follows its two mergers last year, with VerrasLaw in Jersey (10 September 2013) and City-based hedge funds boutique MW Cornish & Co. The latter move followed the decision of name partner Martin Cornish to leave K&L Gates to restablish his own firm, having originally merged it with US firm Katten Muchin in 2005 (13 June 2005).

It plans to add to its current trio of offices over the next two years,n citing the Caribbean and another location in Asia as likely jurisdictions for further expansion.

The office opening comes alongside several partner promotions in MJ Hudson’s City base, which saw former Clifford Chance private equity lawyer Andrew Mills and former legacy SJ Berwin funds lawyer Ted Craig join the partnership.

MJ Hudson was launched in July 2010 by former SJ Berwin private equity partner Matthew Hudson (19 July 2010), and has since welcomed a number of other former legacy SJ Berwin lawyers including private equity partner Graham Nicholson last year (19 November 2013).

Thelawyer.com

Blackstone Said to Be in Talks to Back New Distressed Fund

Blackstone Said to Be in Talks to Back New Distressed Fund

Blackstone Group LP is in talks to back a Hong Kong-based distressed fund started by Jason Brown, a former global head of Goldman Sachs Group Inc. (GS)’s Special Situations Group, said two people with knowledge of the matter.

Brown’s Arkkan Capital Management Ltd. will focus on Asian opportunities with the flexibility to invest globally, said the people, who asked not to be identified as the information is private. It would be the second time Blackstone backs an Asia-based hedge fund since the 2008 global financial crisis.

Arkkan is seeking the support of the world’s largest manager of alternative investments to stocks and bonds to help it attract other big institutional investors. Blackstone’s backing of Hong Kong-based Senrigan Capital Group Ltd. allowed it to grow assets to more than $1 billion in less than two years.

Peter Rose, a New York-based Blackstone spokesman, declined to comment.

New funds in Asia raised an average $20 million each in the first half, according to Singapore-based data provider Eurekahedge Pte.

Brown ran Goldman Sachs’s global Special Situations Group, which invests in distressed debt and companies using the bank’s own capital, between 2011 and his departure last year. The unit, known as SSG, is part of the investing and lending operations, which generated $4.3 billion of pretax earnings last year, the most of the New York-based bank’s four business segments.

Brown, a partner based in Hong Kong, had led SSG in Asia from 2007 before his promotion to the global role, according to a memo obtained by Bloomberg News in 2011.

Blackstone Seed

Arkkan received a license from Hong Kong’s Securities and Futures Commission in December, according to information posted on the regulator’s website.

Blackstone in 2009 committed $150 million to Senrigan, a Hong Kong-based event-driven hedge fund manager headed by Nick Taylor, a former Citadel LLC executive. A seeder typically provides startup capital to new hedge funds in exchange for an equity stake in the manager or a cut of its fee revenue.

SSG invests in the debt and equity of troubled companies and makes loans to high-risk borrowers. Its investments have included those in Japan’s largest golf course operator Accordia Golf Co. and pizza-chain Sbarro Inc.

Mount Kellett

Mark McGoldrick, a former global co-head of SSG, in 2008 co-founded New York-based Mount Kellett Capital Management LP, which makes distressed assets, special situations investments worldwide. It oversees $7 billion of assets, according to its website.

Chris Mikosh, a former SSG managing director, co-founded Tor Investment Management (Hong Kong) Ltd. with Patrik Edsparr, previously a Citadel LLC executive, according to a December 2013 statement from backer Grosvenor Capital Management. Tor invests in credit and special situations across Asia, it said.

The Eurekahedge Distressed Debt Hedge Fund Index returned 4.3 percent in the first seven months, outperforming the 2.8 percent gain of the data provider’s global hedge-fund gauge. The strategy returned 16 percent last year, the best performing of nine strategies, according to Eurekahedge’s website.

Source: Bloomberg

Bitcoin Auction Draws Wall Street, Silicon Valley

Bitcoin Auction Draws Wall Street, Silicon Valley Bidders

Buyers from Wall Street to Silicon Valley are lining up to bid on a cache of bitcoins worth $17.4 million, underscoring the interest in the digital currency even after its boom and bust.

Pantera Capital Management, a San Francisco hedge fund backed by Fortress Investment Group, and SecondMarket Inc., a New York brokerage, are among those seeking to buy bitcoins from the U.S. government at an auction scheduled for June 27. A broad swath of interested parties, from individuals to institutional investors, have requested information from the U.S. Marshals Service, which is handling the sale.

“I know of small and large investors who are talking about investing in this,” said Jaron Lukasiewicz, chief executive officer of Coinsetter Inc., a New York-based exchange. “And there are probably some hidden players out there — hedge funds who are looking to get into the market.”

The auction of 29,656 bitcoins, part of more than 144,000 the FBI transferred to U.S. Marshals after shutting down the Silk Road marketplace and arrested its operator last year, represents a rare opportunity to secure a large amount of the virtual currency. Because liquidity on the exchanges is low — a trade of 500 bitcoins can move prices — buying from the government offers a chance to avoid paying a premium.

“If an investor wanted to buy this much bitcoin all at once in the open market, they could bid the price of bitcoin up by 10 to 20 percent by simply filling out that trade,” said Gil Luria, an analyst at Wedbush Securities Inc.

Silk Road

Bidders are required to deposit $200,000 and verify their identities. The U.S. Marshals will notify the winner or winners on June 30. More bitcoins may be sold later, the agency has said.

The sale excludes bitcoins the government obtained from computer hardware owned by Ross William Ulbricht, who the U.S. said ran Silk Road. The marketplace was an online bazaar where anonymous users allegedly bought and sold heroin, LSD, phony passports and computer hacking services. Ulbricht is contesting charges and filed a claim asserting ownership of the bitcoins.

An e-mail from the U.S. Marshals, sent by accident, indicated interest from representatives of Rangeley Capital LLC, a New Canaan, Connecticut-based hedge fund, and DRW Holdings LLC, a Chicago trading firm. The companies declined to comment or didn’t respond to messages.

Digital Asset

SecondMarket, which specializes in hard-to-trade assets, already runs a trust for investors that lets people buy into bitcoins without the risk or technical complications of owning them directly. SecondMarket began raising money in September for the trust, which now has $62.5 million in assets and is seeking to open it to smaller investors as well. The group is assembling a syndicate to bid for the bitcoins, according to CEO Barry Silbert.

“Our syndicate will open up bidding to a much larger universe of smaller purchasers, foreign buyers and those bidders that don’t want their identity revealed,” Silbert said.

The price of bitcoins skyrocketed in 2013 to $1,147 from around $12 as technologists and speculators flocked to the digital currency, before dropping sharply amid regulatory crackdowns in China, Russia and elsewhere. Its price was $585.98 yesterday, according to the CoinDesk Bitcoin Price Index, which represents an average of bitcoin prices across leading global exchanges.

Hedge Funds

Bitcoins, which exist as software and aren’t controlled by any single authority or country, emerged in 2009 out of a paper authored under the pseudonym Satoshi Nakamoto. Since then, retailers selling everything from gummi bears to psychiatric services to luxury homes have started accepting bitcoins.

Pantera will participate in the auction, according to CEO Dan Morehead. While he declined to discuss the fund’s strategy, Morehead said in a prior interview his fund will buy bitcoins and invest in businesses that are building the infrastructure to make the digital currency more useful, and therefore more valuable.

“There will be a whole spectrum of opportunities in the digital currency ecosystem,” Morehead said in the interview.

The fund has invested in Ripple Labs Inc., a San Francisco startup, and Bitstamp Ltd., an online exchange.

Daniel Masters, a co-principal of Global Advisors Ltd., a Jersey-based hedge fund, said he was putting together a consortium of bidders for the bitcoins. Masters said he “certainly won’t be bidding a premium.”

“The fund’s strategy is, within reasonable constraints of prudence and liquidity and in avoidance of obvious risks, buy and hold,” Masters said.

Source: Bloomberg

Growth Investors

Growth Investors

Where to for growth investors now?

I had a fascinating discussion with a potential client a few weeks ago. He had made a lot of money over the years from numerous businesses, and was wanting to slow down a bit. It was not long into the meeting when he made clear his requirements.

It went along the lines of “I do think that the markets are looking expensive at the moment, but that does not change the fact that I am still a high risk investor, and I want to see what you can come up with for an investor like myself. I may be over 60 years old, but I made all my money by taking risk and I am not about to stop just yet.”

It was an interesting mandate to tackle given that growth investors have been so well rewarded in the past few years, and that a lump sum investment always entails timing risk. So what options are out there for a risky old man, or any growth investor with new capital to commit to an investment today?

Multi-asset class flexible

The one sector in the unit trust space where one could go for clues on where to invest with a growth mandate is the Worldwide-Multi Asset-Flexible category. Here managers have the full investment universe to access, and are not limited to domiciles or asset classes or by pension fund regulations. With only R23 billion of the over R1 trillion invested in unit trusts, it is a category often overlooked by investors. Our preference in the category is the Foord Flexible and the Coronation Optimum Growth funds.

According to the May 2014 fact sheet Foord has 65% invested offshore and only 35% invested in South Africa. The bulk of the funds (80%) is invested in equities (55% offshore, 25% SA) and the rest is invested in cash. Coronation is more aggressively positioned with 90% invested offshore and 10% local, with over 85% invested in equities and the rest in cash.

So without restrictions on where to invest, the managers are favouring offshore over local, and equities over the other traditional asset classes. Both funds delivered around 15% return for the year ended May 31 2014, but Foord had a Total Expense Ratio (TER) of 1.7% which is significantly lower than Coronation’s TER of 2.85%. We gave the client both funds with a higher exposure to Foord Flexible.

The graph below shows both funds relative to the JSE Alsi since inception of the Foord fund which is the younger of the two. We continue to use the Coronation fund due to the need for manager diversification, and because past performance is no indicator of future performance. We also use Coronation mainly on asset allocation mandates and are happy with the overall performance. We give Foord the higher weighting because of the cost structure.

Private Equity

Private equity has long been an asset class for the very rich and for institutional investors. It has increasingly opened up to retail investors with companies such as Old Mutual Investment Group (Omigsa) and Momentum bringing out retail products. The Omigsa offering seems to have had the most success in this regard. Its OM Multi Manager Private Equity Fund I has the longest track record having started in May 2006. Since then it has outperformed the Alsi by over 9.5% p.a. net of fees. Subsequent funds (Fund II and the Secondary Fund) have failed to outperform the Alsi since inception, but those funds still have some way to go before underlying investments are exited at which point investors can experience a significant uptick in value.

The long term picture shows that private equity has consistently outperformed listed equity in local and offshore markets. The Yale Endowment fund which has been in the top 1% of institutional funds in the US since the mid 1980s has attributed much of the outperformance relative to the Dow Jones to its private equity exposure. This was echoed in the 2009 annual report where the manager made the following statement “The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power…. Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management. The Endowment’s long time horizon is well suited to exploiting illiquid, less efficient markets”

Omigsa’s Fund III is currently open where the company has made a R600 million tranche available for the retail market. Underlying managers include Old Mutual Private Equity, Actis, Ethos, Capitalworks and the Carlyle Group. Some of the more well known investments in the fund include Reclamation, Consol, Actom, Idwala, Tracker and Tourvest. The fund also has exposure to Sri Lankan Asiri Group of Hospitals, India’s Endurance Technology and Sterling Add Life, as well as investments in Brazil, Singapore, and China.

The attraction of private equity is its low correlation to other growth assets, which is a plus from a risk management perspective. It also gives investors exposures to shares not available on the market. One potential disadvantage for retail investors is that the fund is only available via an endowment structure, and there is a huge penalty for early exit. The product is also a relatively expensive one and as such will not be attractive to cost sensitive investors. We would allocate a maximum 10 – 15% of a client’s portfolio to such an investment given these issues.

Investec Value

John Biccard, the fund manager of the Investec Value Fund, made a comment at a recent manager presentation that made me sit up and listen more attentively. He echoed the client’s comment that the market is expensive, and added that return drivers were looking toppish as well. His comment that got my attention was “when the markets are buying a theme, they are selling something they do not like, which creates opportunities. We have never been this far away from the market as we are now…” The challenge John has with his fund is that he has limited options when he cannot find value in the market. The fund is an equity fund and has to have the bulk of its investments domiciled in South Africa. The fund is highly volatile but we believed that a small exposure could deliver good returns if some of the opportunities John discussed were to play out as expected.

We will go back to the client with a recommendation to increase exposure to dividend yielding shares at some point, but current yields do not support an investment at this stage. Listed property also looks unattractive given the potential for rising interest rates in the coming months.

There are not many growth options looking attractive at this stage, but an exposure to an actively managed flexible fund, an alternative asset class and a high conviction equity fund should deliver decent returns in the years ahead.

Source: http://www.moneyweb.co.za

Chinese asset management

Chinese asset management

Reforms open up opportunities in Chinese asset management

China’s efforts to liberalise its currency and open its capital markets are also creating job opportunities for people in the asset management industry.

This is particularly true of sales and investment management, recruiters say.

On the institutional side, investors such as the China Investment Corporation, the world’s fourth largest sovereign wealth fund, as well as the National Council for Social Security Fund, are diversifying offshore and increasingly outsourcing their portfolios to external managers.

This is boosting the potential demand for China-focused sales positions, says John Mullally, Hong Kong-based associate director of banking and financial services at recruitment group Robert Walters.

Also upbeat is Charity Ip, a Hong Kong-based consultant at Morgan McKinley who specialises in recruiting for asset management, private banking, private equity and hedge fund positions in Hong Kong, Singapore and Taiwan.

Ms Ip says that China-focused hirings in the asset management industry have been on the increase recently, if not dramatically.

This is partly because the mutual recognition of funds by Hong Kong and China is seen as a potential driver of expansion rather than an opportunity that deserves immediate action.

The initiative, which is still awaiting approval from China, would allow Hong Kong-domiciled and authorised funds to be sold into China and vice versa.

Sales positions in general have been more in demand and offer better prospects in terms of remuneration than other jobs in the fund management sector in Asia, especially in Hong Kong, Singapore, Japan and South Korea, Ms Ip says.

Sales and marketing have long been the dominant area in Hong Kong.

In 2012, some three-quarters of the territory’s 32,188 fund management employees were engaged in sales and marketing, according to the latest available data from the Securities and Futures Commission of Hong Kong.

Alexa Lam, deputy chief executive of the SFC, told a conference in December that the regulator had been working on strengthening the market’s portfolio management and fund administration capabilities.

The Hong Kong-China mutual recognition initiative is part of that drive.

Both Mr Mullally and Ms Ip say they are positive about the growth in portfolio management positions, not just in Hong Kong but across the region.

In terms of specific asset classes, fixed income appears to be the fastest growing in Asia at the moment.

Significant recruitment has taken place in the fixed-income space in recent months, says Chris Mead, regional director for Singapore and Malaysia at recruitment firm Hays.

Meanwhile, Marc Baloch, director of the financial services practice at Harvey Nash Executive Search Asia Pacific, says that portfolio managers who are well versed in multi-asset strategies and private equity will find more opportunities in the region.

In terms of qualifications, a Chartered Financial Analyst (CFA) designation, though preferred, is “certainly not a must-have” for sales-related positions, says Mr Mullally, noting that such roles would be more relationship-driven.

For positions associated with portfolio management, companies would typically favour candidates with good quantitative skills and an aptitude for the industry that can be demonstrated through their own portfolio, Mr Mead says.

“In addition to a good qualitative degree from a reputable university, Chartered Alternative Investment Analyst and CFA qualifications are an advantage,” he says.

Source: http://www.ft.com/

Bond Selling

Bond Selling

Debut Bond Sales Swell in Europe as Risks Mount: Credit Markets

Companies are debuting a record amount of bonds in Europe as investors demanding higher yields show greater tolerance for untested borrowers who are seeking to diversify funding as banks curtail lending.

Finnish insulation maker Paroc Group Oy and French car parts distributor Autodis SA are among 54 first-time issuers that sold 20 billion euros ($27 billion) of notes this year, compared with 40 companies selling 14 billion euros in the same period last year, according to data compiled by Bloomberg. More than 75 percent were either unrated or below investment grade, with more than half of those ranked B or lower.

“Issuers can sell anything they want and it’s getting bought,” said David Newman, the London-based head of global high yield at Rogge Global Partners, which manages $55 billion. “Worse and worse credits are coming to market.”

Increasing demand for riskier securities has prompted warnings by policy makers that easy money is encouraging investor complacency and leaving markets vulnerable to a swift reversal. Yields on company bonds in Europe slumped to lows this month after the European Central Bank cut its benchmark interest rate to 0.15 percent.

Issue Premium

The average yield on investment-grade corporate bonds in euros has fallen 59 basis points this year to a record low of 1.49 percent, according to Bank of America Merrill Lynch index data. Yields on speculative-grade debt declined to a low of 3.46 percent in May from a an unprecedented 27.8 percent in 2009. They have since increased to 3.57 percent, the data show.

New borrowers in the bond market typically have to pay as much as 50 basis points in additional yield to investors, according Shahzada Omar Saeed, the Zurich-based global head of high yield at Swisscanto Asset Management Ltd., which manages $57 billion.

“There’s a clear trend toward debut issuance,” Saeed said in a telephone interview. “It isn’t a free lunch because there’s never a free lunch in high yield, but it’s a very compelling opportunity.”

High-yield bonds are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

Paroc sold 430 million euros of fixed- and floating-rate notes last month, Bloomberg data show. The securities were rated B by S&P and provisionally ranked B2 by Moody’s.

Autodis Bonds

The Helsinki-based company’s 200 million euros of six-year bonds were priced to yield 6.25 percent and compare with an average yield of 4.25 percent for similarly rated debt in May, according to Bank of America Merrill Lynch’s Single B Euro High Yield Index.

“The yield was according to our expectations,” Mika Toikka, a spokesman for Paroc, said in an e-mailed response to questions. The bond “offers more flexibility to implement our strategy.”

Autodis’s 240 million euros of notes due February 2019 were priced to yield 6.5 percent, Bloomberg data show. The securities, which were sold in January, were ranked B3 by Moody’s and B+ by S&P.

“We wanted to avoid the constraints of loan covenants that would have deprived us of flexibility,” the company said in an e-mailed statement in response to questions. “The bond offered interesting financing opportunities at competitive rates. Thanks to a significant oversubscription from investors our interest rate was considerably reduced from 8 percent to 6.5 percent.”

‘Idiosyncratic Volatility’

The equivalent of $312 billion of speculative-grade bonds were issued globally this year, the most for the period since at least 1999, when Bloomberg began compiling the data.

In Europe, 35 percent to 40 percent of high-yield bond sales were from first-time issuers compared with about 5 percent in the U.S., according to Louis Gargour, the chief investment officer at LNG Capital, a London-based hedge fund that focuses on credit markets in western Europe.

“This creates an exciting and opportunistic European new issue market,” Gargour said in a telephone interview yesterday. “New issuance is good because it introduces idiosyncratic volatility and fresh blood. It’s great for hedge funds and OK for the market.”

ECB President Mario Draghi indicated on June 21 that the central bank’s record-low interest rates will probably remain low for at least another 2 1/2 years. Officials from Britain to Germany are warning that a persistent easing policy may brew trouble.

‘Bully Pulpit’

While the low-interest-rate environment is appropriate at the moment, it’s “worrisome” over a longer period of time, Bundesbank board member Andreas Dombret said in a Bloomberg Television interview with Haslinda Amin in Singapore on June 19. The two newest members of the Bank of England’s Monetary Policy Committee, Kristin Forbes and Andy Haldane, said at separate events on June 18 that easy monetary policy may be making investors too sanguine about risk in their search for yield.

Policy makers need to take to the “bully pulpit” to “remind investors there is going to be a change in interest rates at some point in the future,” Forbes, a Massachusetts Institute of Technology professor who will join the MPC next month, told lawmakers at her appointment hearing in London.

Iglo Foods

Ultra-loose monetary policy has yet to benefit all parts of Europe, with bank lending in the region still shrinking. High-yield loans to companies in Europe, Middle East and Africa slumped this year to the equivalent of $67 billion from $107 billion in the first six months of 2013, Bloomberg data show. Banks extended the fewest loans since the first half of 2010, the data show.

“Many of the deals we see coming through are quite familiar because a lot of them are loan-to-bond refinancing,” said Peter Aspbury, a high-yield portfolio manager at JPMorgan Asset Management, which oversees $1.6 trillion globally. “The other prevailing trend is deleveraging of euro zone bank balance sheets which is pushing more middle-market deals to market.”

Novafives SAS, a Paris-based industrial engineering group and Feltham, England-based Iglo Foods Group are among companies planning their first bonds in euros, according to preliminary data compiled by Bloomberg.

“High yield has become the fashion purchase, so there’s scope for very large price falls,” said Alan Miller, founding partner and chief investment officer at SCM Private, a London-based wealth manager founded in 2009. “If there was a rout and lots of people selling, many mutual funds would be totally unable to meet liquidity and we would witness a huge wave of suspensions of bond funds.”

Source: Bloomberg

Hong Kong-Swiss Hedge Fund

Hong Kong-Swiss Hedge Fund

Swiss-Asia Financial Starts Hedge-Fund Platform in Hong Kong

Swiss-Asia Financial Services Pte started a hedge-fund platform in Hong Kong, adding to one in Singapore, to meet rising demand from smaller funds seeking to cut costs amid tighter regulations.

Two funds with assets under management of between $10 million and $30 million are in the process of joining the Hong Kong service that provides smaller managers with infrastructure, office space and helps them with their compliance requirements while allowing them to focus on investment decisions, said Omar Taheri, business development manager at Swiss-Asia. The Singapore-based firm plans to add five funds in Hong Kong within the next 12 months, he added.

Hedge-funds managers with smaller capital are increasingly joining platforms, which provide non-investment services, to cut costs and comply with stricter regulations that require them to devote more time to administration tasks. Swiss-Asia has signed up seven managers so far in Singapore, out of which five started this year, Taheri said. Another four are in the process of starting in the city-state, he added.

“Starting on a platform allows fund managers to focus on their investment style while having risk management and fund administration at reduced cost,” said Mohammad Hassan, a Singapore-based analyst at data provider Eurekahedge Pte. “In particular, it is useful for smaller funds.”

Asia-based hedge funds oversaw a combined $81.6 billion as of May, according to Eurekahedge. In Singapore, 284 fund-management companies had $15.4 billion of assets under management as of March, compared with $25.4 billion managed by 455 firms in Hong Kong, it said.

Tighter Regulations

Swiss-Asia already provides a similar service, run by a team of six, for its wealth-management customers in Hong Kong, Taheri said. He will be among those running the new hedge-fund platform and Swiss-Asia will hire more staff for the project, Taheri said without elaborating.

Fund managers are joining platforms as tightening regulation of lenders and asset managers globally increases administrative and compliance work.

The U.S. Foreign Account Tax Compliance Act, or Fatca, enacted in 2010, increased hedge funds’ requirements to be informed about U.S. investors, while the European Union’s Alternative Investment Fund Managers Directive, or AIFMD, asks managers to reduce organizational complexity and centralize management company activities, according to a paper by the Alternative Investment Management Association.

The Monetary Authority of Singapore in 2012 introduced new regulations, which affect smaller hedge funds. Registered fund managers, as they are called under the new regime, now must have at least two relevant professionals with a certain level of experience as opposed to one under the old rules.

“Being the biggest hedge-fund center in Asia, Hong Kong is the right match to our existing platform in Singapore,” Taheri said. “The advantage has become even bigger because of the new rules.”

Source: Bloomberg

Asian Hedge Fund Growth

Asian Hedge Fund Growth

Asia Large Hedge Funds Seek Regional Growth in Micron, Apple

Asia’s large hedge funds are turning to companies outside the region to deliver better returns on the billions of dollars they have raised.

Azentus Capital Management Ltd., with about $800 million in assets, generated more than a third of its 17 percent return last year outside Asia, said a person with knowledge of the performance. Tybourne Capital Management (HK) Ltd. reported $848.8 million worth of U.S.-listed securities at the end of March and Myriad Asset Management Ltd. disclosed $476.9 million, according to their 13F filings with the U.S. Securities and Exchange Commission.

“Previously, you generally saw Asian funds having only an Asian mandate,” said Matt Pecot, Asia-Pacific head of prime services at Credit Suisse Group AG (CSGN) in Hong Kong. “Nowadays, more funds launched within the region have expanded that to take advantage of the insights that they have gathered in Asia and put a portion of that money to work in the U.S. or Europe.”

Funds that have raised at least $1 billion after 2009 are turning to global companies that benefit from Asia’s growing consumer and production power, and which are more frequently traded, according Credit Suisse and Bank of America Corp.’s Merrill Lynch unit. They also are stepping outside their home base after the MSCI Asia-Pacific Index generated an annualized return in the three years to April only about a fourth of the MSCI World Index’s.

Finding Liquidity

Roger Denby-Jones, Azentus’s chief operating officer, Scott Gaynor, his counterpart at Myriad, and Tanvir Ghani, COO at Tybourne, declined to comment on the funds’ holdings and returns. The 13F filings may underestimate their investments outside the region as they include only securities on a quarterly SEC list, including American depositary receipts of Asian companies, not those traded in Europe.

Azentus initially disclosed holdings in Micron Technology Inc. (MU) in its second quarter 2013 13F filing, when the largest U.S. maker of memory chips was trading at an average price of about $11.

Micron completed the acquisition of bankrupt Japanese rival Elpida Memory Inc. in July 2013 amid industry consolidation to reduce supply glut. The stock has more than doubled to a high of $28.66 in the 12 months to June 2. Micron was the fourth-largest of Azentus’s $130.1 million of 13F holdings at the end of March.

Apple, Micron

About 226 stocks listed in Asia have daily turnover of more than $50 million, the type of companies hedge funds with more than $1 billion in assets typically target, including those in markets like China, which restrict trading by foreigners. That compares with more than 190 in Europe and almost 850 in the U.S., according to data compiled by Bloomberg.

Apple Inc. (AAPL)’s average daily trading turnover in the 12 months to April was about half of the total for all of the stocks listed in Hong Kong and Australia, according to Bloomberg-compiled data.

“As the largest regional hedge funds continue to raise assets and dominate inflows, they have a requirement to deploy capital without hindering the funds’ liquidity,” said Ben Williams, regional head of financing sales at Bank of America Corp.’s Merrill Lynch unit in Hong Kong. “These U.S., European companies can often be a more efficient way to play Asian investment themes.”

Myriad, Tybourne

Myriad and Tybourne held shares in Google Inc. as of March 31, according to the filings. The U.S. company develops the Android operating system for mobile phone and tablet makers including Samsung Electronics Co.

Apple was the third-largest 13F holding of Myriad at the end of March. The maker of devices such as iPhone and iPad counts Asia as the center of its global supply chain, where it also generated 35 percent of second-quarter sales, according to its annual supplier report and second-quarter disclosure.

Mead Johnson Nutrition Co., also among Myriad’s holdings, is the largest supplier of baby formula in China. The fund also own shares in luxury goods companies such as Ralph Lauren Corp. and Tiffany & Co. The Chinese accounted for 28 percent of global luxury goods sales last year, Bain & Co. estimated.

Growing Assets

Tybourne’s hedge fund, which accounts for the bigger part of its assets, returned about 1 percent in the first quarter and recovered in May most of its single-digit April loss, said a person with information on its performance, declining to give specific figures. It gained about 16 percent last year.

Azentus, founded by a former head of Goldman Sachs Group Inc.’s largest proprietary trading desk Morgan Sze, lost more than 5 percent in the first four months this year, said three people with knowledge of its performance.

Myriad, led by Carl Huttenlocher, a former head of Highbridge Capital Management LLC’s Asian operations, is approaching $3 billion in assets, three people told Bloomberg News last week. Its net asset value is little changed this year after last year’s 20 percent return, the people said.

Myriad, which opened its hedge fund in December 2011, targets to allocate as much as 20 percent of assets to securities listed outside Asia over the long term, said a person familiar with the fund on condition of anonymity as the information is private.

Azentus raised about $2 billion within four months of inception in 2011. Tybourne, established by Lone Pine Capital LLC’s former Asia head Eashwar Krishnan in 2012, now oversees more than $2.6 billion in hedge and long-only funds.

Knowing Companies

About 37 percent of the combined $81 billion assets of Asia-based managers were in the hands of billion-dollar-plus hedge funds at the end of April, 10 percentage points higher than December 2007, according to Eurekahedge Pte.

The average Asia-based hedge fund oversees $147 million, the Singapore-based data provider said. About 49 percent of Asia-based hedge funds lost money in the first four months this year, it said.

Asia-based managers may face investor questions on what their strategy is and how they can claim to know U.S. and European companies better than competitors based in those continents, said Daniel Celeghin, Asia head of Casey Quirk & Associates LLC, a Darien, Connecticut-based adviser to asset managers. Managers in the region can argue that they have deeper insights into how Asia is the key driver of a U.S. or European company, and that could move the stock price, he said.

The expansion to the West by Asia’s bigger hedge funds has coincided with the underperformance of Asian markets as easing by central banks drove recoveries in the U.S. and Europe. The MSCI Asia-Pacific Index (MXAP) returned an annualized 2.6 percent in the three years to April, trailing the Standard & Poor’s 500 Index’s 14 percent and the STOXX Europe 600 Index’s 10 percent gains.

“When global growth seems challenged or if other less volatile economies look attractive, money tends to leave emerging markets en masse and indiscriminately,” said Anthony Lawler, a money manager at the $129 billion Swiss company GAM. “That risk is what some hedge funds have looked to minimize in their books.”

Source: Bloomberg