A New Hedge Fund Haven: Asia-Pacific

Asset inflows and investment returns in the region are outstripping global peers.

Asia-Pacific hedge funds are leading the race to gain new assets and grow existing money through investment returns, new data has shown.

Sector assets in the region grew by 30% in 2014, according to Preqin, as growth in more established global centres remained in the low single-digit percentages.

“The volatility of Asia-Pacific-focused hedge funds has decreased significantly since November 2013.” —Preqin“Much of this growth has been driven by the growing base of institutional investors in the region,” Preqin said in a report on the sector, “from large sovereign wealth funds to small local pension schemes that have increasingly begun to turn to hedge funds to help meet portfolio liabilities and long-term investment objectives.”

The data monitor reported that 556 investors in the region had committed capital to hedge funds. At the end of 2014, there were 2,216 funds there, most of them based in the five major centres of Hong Kong, Australia, Singapore, Japan, and South Korea.

The largest group of investors, making up 31% of the local investor base, were Australians, followed by Japanese investors making up 24% of the community.

Some 55% of local investors interviewed by Preqin said they would continue to hold hedge funds, with 27% indicating they would increase their holdings in the sector. Some 86% said they remained confident in the sector.

While the $145 billion held in Asia-Pacific makes up a small fraction of the global figure of $3 trillion, investment returns have consistently beaten those made elsewhere, thus pushing up their weighting overall. In 2014, an additional $33 billion was added to the regional total assets.

Preqin reported an 11.91% annualised return for funds in the region over the last three years, compared to a global average of 8.88% for the same period.

“The higher returns of Asia-Pacific funds have, for most of the past five years, been accompanied by increased volatility,” Preqin said. “However, the volatility of Asia-Pacific-focused hedge funds has decreased significantly since November 2013, and as of January 2015, it has become the category with the least volatility.”

As a result of smaller fluctuations in performance over 2014, compared to other regions globally, the 12-month volatility for Asia-Pacific-focused hedge funds stood at 2.76% by the end of January this year.

The uptick in the region is also set to continue, Preqin predicted.

“A favorable macro environment, increased options for investment, as well as countries such as Japan, China, and India implementing expansionary fiscal and monetary policies in order to jump start economic growth, has led to increased opportunities and appetite for fund managers to launch funds focused on the Asia-Pacific region,” the report concluded.

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