Are Asian investors warming to hedge funds?

Added 7th August 2017

Asia-Pacific investors allocated $202bn to hedge funds in 2016, up from $180bn a year earlier, according to a Preqin report.

Are Asian investors warming to hedge funds?

 

 

The majority of capital invested in hedge funds came from sovereign wealth funds (54%), followed asset management firms (10%), private sector funds (8%) and insurance companies (8%).

Banks, wealth management firms and family offices all together accounted for around 8% of the total capital.

Examples of wealth managers and family offices invested in hedge funds are Hong Kong-based family office Legacy Advisors, with around $100m invested with plans to allocate more this year and China-based CMBC Private Banking, with $1.97bn allocated to hedge funds, according to the report. 

“Although the capital flowing to hedge funds from Asia-Pacific institutions is currently driven by SWFs, there are signs that the industry’s appeal is attracting an increasingly diverse range of investors,” Amy Bensted, head of hedge fund products, said in the report. 

“It will be interesting to see if investors in emerging Asian economies will become more involved with the asset class.”

In terms of individual markets, Singapore-based investors have the highest average allocation to hedge funds, at 14.1% of their assets, followed by Hong Kong (13.9%) and Japan-based investors (13%). 

Hong Kong remains the largest hedge fund market in terms of size ($63.2bn) and number of managers (368). Globally, it is the third largest market in terms of hedge fund capital managed, behind the US and the UK.

Country

Number of institutional investors

Average current allocation to hedge funds (% of AUM)

Number of hedge fund managers

Hedge fund AUM ($bn)

Hong Kong

92

13.9

368

63.2

Australia

185

7.5

124

29.6

China

27

9.7

80

18.9

Singapore

64

14.1

181

17.6

Japan

118

13

56

9.9

South Korea

44

3.7

28

5.6

India

17

5.3

40

1.2

New Zealand

19

8.1

9

-

 Source: Preqin

Industry sources have previously highlighted the importance of hedge funds in client portfolios.

For example, Roger Bacon, head of investments for Asia-Pacific at Citi Private Bank, said in a previous FSA interview that although hedge funds haven’t delivered on their promises, they play an important role in a diversified portfolio.

Johan Jooste, Bank of Singapore’s chief investment officer, also believes that hedge funds offer diversification in a balanced portfolio.

Echoing Jooste, James Cheo, BoS’ investment strategist, said that hedge funds in a client’s portfolio can reduce volatility or act as a portfolio diversifier

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