Content Includes: Preqin Special Report: Asia-Pacific Hedge Funds Overview of Asia-Pacifi c March 2015 Hedge Funds New regions for investment are emerging amid a changing economic and regulatory landscape. Overview of Asia- Pacifi c Hedge Fund Performance Performing better than hedge funds globally following economic growth in region. Institutional Investors in Asia-Pacifi c A look at the region’s diverse range of active investors in hedge funds. Asia-Pacifi c-Based Investors’ Outlook on Hedge Funds What do investors look for in fund managers in 2015? Did hedge funds meet their expectations in 2014? alternative assets. intelligent data. Download the data pack: Preqin Special Report: Asia-Pacific Hedge Funds www.preqin.com/HFAsia15 The Asia-Pacific Opportunity Asia-Pacifi c as a destination for hedge fund management has been expanding rapidly over the past few years; over 2014 alone industry assets in the region grew by almost 30%. Much of this growth has been driven by the growing base of institutional investors in the region, from large sovereign wealth funds through to small local pension schemes, that have increasingly begun to turn to hedge funds to help meet portfolio liabilities and long-term investment objectives. Recent regulatory reforms that have swept across the region have enabled both fund managers and investors alike to ramp up their activity in the hedge fund space, and this rapid growth is expected to continue over the next few years as more regions for hedge fund activity emerge within Asia-Pacifi c. In this report we look at the state of the hedge fund industry in Asia-Pacifi c by examining both local funds and those from beyond its shores investing in the region. We also take a closer look at investors from Asia-Pacifi c using data taken from Preqin’s award-winning Hedge Fund Investor Profi les online service and the results of investor interviews carried out at the end of 2014. Top Five Leading Centres for Hedge Funds in Asia- Asia-Pacific-based Pacific (by AUM) hedge funds represent Japan $10bn $145bn South Korea in assets under Hong $5bn Kong management $61bn Singapore $29bn Rest of Asia- Pacific $5bn 2,213 Australia hedge funds are $36bn based in Asia-Pacific Asia-Pacific-focusedA hedgeh funds have delivered annualized returns of 556 11.91% Asia-Pacific-based over the past institutional investors three years invest in hedge funds Contents Overview of Asia-Pacific Hedge Funds ....................................................................................3 Overview of Asia-Pacific Hedge Fund Performance .............................................................5 Institutional Investors in Asia-Pacific ..........................................................................................7 Asia-Pacific-Based Investors’ Outlook on Hedge Funds .........................................................8 2 © 2015 Preqin Ltd. / www.preqin.com Download the data pack: Preqin Special Report: Asia-Pacific Hedge Funds www.preqin.com/HFAsia15 Overview of Asia-Pacific Hedge Funds Asia-Pacific, as a centre for hedge funds, is expanding rapidly. Australia, Singapore and Hong Kong lead the way as the principal financial centres in the region; however, new regions for hedge fund investment have emerged over the past five years as a result of a changing economic and regulatory landscape. In this section we examine the industry within Asia- Pacific, and take a closer look at hedge funds located outside its borders but with a focus on investment in the region. Asia-Pacific Adds $33bn in 2014 Fig. 1: Hedge Fund Manager Assets under Management by Region As of 31 December 2014, Asia-Pacifi c-based hedge funds represented $145bn of the $3.02tn in global industry assets (Fig. Region Assets under Management ($bn) 1). The Asia-Pacifi c hedge fund industry is growing rapidly; from 2013 to 2014, the industry accumulated an additional $33bn in North America 2,198 capital, a 29% growth over the 12 months ending 31 December Europe 609 2014. Asia-Pacifi c 145 Hong Kong, Australia and Singapore Are the Established Rest of World 67 Centres for Hedge Funds in Asia-Pacific Total 3,020 Fig. 2, taken from the 2015 Preqin Global Hedge Fund Report, Source: 2015 Preqin Global Hedge Fund Report shows the leading 10 countries globally in terms of the assets under management of the hedge funds based in that region. Fig. 2: Breakdown of Hedge Fund Manager Assets under Three countries within Asia-Pacifi c – Hong Kong, Australia and Management by Country Singapore – are in this group of leading locations for hedge fund management, with Hong Kong representing the larger amount of Firm Headquarter Location Assets under Management ($bn) assets ($61bn). In fact, the combined assets of the funds within US 2,154 Singapore, Australia and Hong Kong represent 87% of all assets in Asia-Pacifi c-based hedge funds. The largest hedge fund manager UK 413 in the region, Platinum Asset Management, is based in Australia Jersey 62 (Fig. 4). In fact, nine of the 10 largest fund managers in Asia- Pacifi c are based in either Singapore, Hong Kong or Australia. Hong Kong 61 Brazil 51 Asia-Pacifi c-based hedge fund managers account for 65% of all Sweden 39 hedge fund managers in the industry that manage Asia-Pacifi c- focused hedge funds. Of the remaining 35%, groups outside the Australia 36 region which run funds focused on the region, more than half are Canada 31 based in North America (56%), with 42% headquartered in Europe and 2% in Rest of World (Fig. 5). Singapore 29 France 25 Equity Strategies Dominate the Asia-Pacific Hedge Fund Source: 2015 Preqin Global Hedge Fund Report Landscape Equity-based hedge fund strategies are the most commonly Fig. 3: Breakdown of Asia-Pacific-Based Hedge Fund utilized strategy among fund managers with a focus on Asia- Managers by Location Pacifi c; 62% of funds based within Asia-Pacifi c utilize an equity- based approach, and 55% of funds investing in Asia-Pacifi c from 1% other regions also invest primarily as an equity strategy (Fig. 6). 1% Fund managers investing in Asia-Pacifi c from beyond the region 3% 1% Hong Kong 3% are more likely to employ a macro strategy when investing in the 1% Singapore 5% region compared to local funds. Australia 8% 38% Japan Eighty-six percent of Asia-Pacifi c-focused hedge fund vehicles China managed by local managers are structured as single-manager hedge funds (Fig. 7). However, fund managers investing in India the region from beyond its borders employ a greater variety of South Korea structures when investing in Asia-Pacifi c. Seventeen percent 15% New Zealand of non-Asia-Pacifi c-based fund managers invest in the region Malaysia through fund of hedge funds products; these funds are a key Thailand way for investors from outside Asia-Pacifi c to gain exposure 23% Other to these markets through a fund which may be managed from the US or Europe. The regulatory European UCITS wrapper is another product used by managers from beyond Asia-Pacifi c to create hedge fund products investing in the region; 12% of funds Source: Preqin Hedge Fund Analyst investing in Asia-Pacifi c from outside the region are structured as UCITS funds. 3 © 2015 Preqin Ltd. / www.preqin.com Download the data pack: Preqin Special Report: Asia-Pacific Hedge Funds www.preqin.com/HFAsia15 Local Funds Outnumber their Global Counterparts (please see the 2015 Preqin Global Hedge Fund Report for more details). Until 2005, it was predominantly funds from outside Asia- Fig. 8 shows the number of funds launched each year with a Pacifi c that were launched to focus on the region; however, from focus on Asia-Pacifi c. The region showed signifi cant growth as a this year onwards, there was a rapid proliferation of funds based destination for hedge fund investment from 2005, reaching a high in the region investing in local markets. In 2004, 47% of all Asia- of 186 Asia-Pacifi c-focused fund launches in 2010. The number Pacifi c-focused hedge funds launched were managed by Asia- of fund launches with a focus on the region fell in 2013 and 2014; Pacifi c-based managers; this share jumped to 74% in 2014. this is a trend that has been seen on a global basis, with fewer funds being launched in these years than at the start of the decade Fig. 4: Largest Asia-Pacific-Based Hedge Fund Managers by Assets under Management Manager Location Year Established Assets under Management Platinum Asset Management Australia 1994 $20.7bn as at 31 December 2014 Value Partners Hong Kong 1993 $12.9bn as at 31 December 2014 Hillhouse Capital Management Singapore 2005 $7.8bn as at 31 March 2014 Dymon Asia Capital Singapore 2008 $4.5bn as at 1 January 2015 Macquarie Investment Management Australia 2003 $3.8 as at 31 October 2014 Myriad Asset Management Hong Kong 2011 $3.8bn as at 1 January 2015 SPARX Asset Management Korea South Korea 1999 $3.2bn as at 31 January 2015 Prime Capital Management Hong Kong 2004 $3.0bn as at 30 November 2014 Turiya Capital Hong Kong 2010 $3.0bn as at 31 December 2014 Orchid Asia Group Management Hong Kong 1993 $2.8bn as at 31 December 2014 Source: 2015 Preqin Global Hedge Fund Report Fig. 5: Breakdown of Asia-Pacific-Focused Hedge Funds Managed by Firms Headquartered Outside the Region Fig. 6: Breakdown of Asia-Pacific-Focused Hedge Funds Split by Location (Proportion of Firms) by Core Strategy 100% 0% 2% 8% 8% Niche Strategies 90% 2% 10% 11% 80% Multi-Strategy 6% 5% 70% 7% 7% North America 6% Relative Value 60% 12% Strategies 50% Credit Strategies 42% Europe 40% Event Driven 56% 30% 62% Rest of World 55% Strategies 20% Macro Strategies 10% Equity Strategies Proportion of Asia-Pacific-Focused Funds 0% Asia-Pacific-Based Asia-Pacific-Focused Hedge Funds Hedge Funds from Outside the Region Source: Preqin Hedge Fund Analyst Source: Preqin Hedge Fund Analyst Fig.