Published November 17, 2008

Dismal September for Asia-Pac hedge funds

Funds in S'pore, HK, Japan and Australia lose over 14% or US$16.5b of assets, compared to a year ago

By EMILYN YAP
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MARKET turmoil, short-selling bans and redemptions combined to deal Asia-Pacific hedge funds another month of losses in September. But it's not all doom and gloom - funds are acting to stay afloat and new players could even emerge, industry observers say.

According to alternative investment research firm Eurekahedge, hedge funds in Singapore, Hong Kong, Japan and Australia lost more than 14 per cent or US$16.5 billion of assets in September compared with a year earlier. Total assets under management in September came to US$95 billion.

Investor redemptions contributed to the poor showing. Hedge funds in these countries suffered net asset outflows of US$4.1 billion in the third quarter - close to half of this in September alone. It was a sharp reversal of fortunes for the funds, which received net inflows of US$3.1 billion in Q3 last year.

The outflow shows few signs of abating. Eurekahedge estimates that hedge funds worldwide lost US$100 billion in October, 60 per cent as a result of more redemptions.

Hedge funds were also hit by short-selling restrictions introduced by governments in a bid to stop markets from tumbling. Many in Asia are long/short equity players and would have been caught by rules imposed in markets such as the US, UK, Australia and Taiwan.

'The shorting bans and attendant disclosure clauses, coupled with distress across some of the largest service providers to the hedge fund industry and anticipated redemption pressure from investors, weighed heavily on hedge fund managers during the month,' Eurekahedge says in an October report.

Difficult conditions shaved hedge fund launches to three in Q3 - one in Australia and two in Hong Kong. Sentiment clearly cooled from a year ago, when 16 new funds sprang onto the scene, including nine in Singapore alone.

Singapore also saw five hedge fund closures in the third quarter, though no fund had suffered such a fate a year ago. Last month, Reuters reported the liquidation of an US$18 million Tantallon Smaller Companies Fund due to volatile markets.

Hedge funds in some countries are trying to gain a breather by extending notification periods for redemption, says Eurekahedge. This will help them avoid closing positions at a loss to meet redemption demands. Some funds have also taken more extreme measures by temporarily barring redemptions.

In fact, new hedge funds could sprout in the next few months. 'The overall contraction of the financial services industry will result in a widespread freeing of talent,' hedge fund consultancy GFIA said last month. 'Many will try their hand at starting their own shops, however tough fund-raising may be for a while.'

Eurekahedge takes a similar view. 'There have been an estimated 60,000 job cuts by the major US banks over the past 12 months, a portion of which may reasonably be expected to drive hedge fund start-up activity in the near term.'