Goldman Sachs to GLG Open Asia Hedge Funds as Big Is Chic

Goldman Sachs to GLG Open Asia Hedge Funds as Big Is Chic

Global banks and assets managers are opening hedge funds in Asia for the first time since the 2008 financial crisis, putting pressure on smaller firms that are already struggling to hold onto investors. Goldman Sachs Group Inc., UBS AG and GLG Partners Inc. are gathering investor money for debut hedge funds dedicated to the region. Highbridge Capital Management LLC and Pine River Capital Management LP are restarting or expanding their Asian offerings.Such in-house funds can generate new fees and keep talent from striking out on their own. Staying with a big company helps fund managers cover the rising costs of running a business, comply with regulations and meet the more stringent requirements of large institutional investors, said Tim Peach, Singapore-based managing director for Asia at Man Group Plc, which bought GLG in 2010 and is the world’s largest publicly traded hedge-fund firm.

“A lot of people who would have gone independent don’t have much of a choice now,” said Richard Johnston, Asia head of Albourne Partners Ltd., a London-based adviser for hedge-fund and private-equity investors

Smaller firms that got their start after the crisis, many with traders who had left the big banks, are finding it harder to survive and grow as funds of funds, a key source of money for small Asian hedge funds before 2008, lose assets, said Hong Kong-based Johnston. Growth is also being hindered by rising costs for compliance and catering to institutional investors, which can be a burden for firms with less than $50 million.

Holdings Cap

Endowments, pensions and foundations are increasingly making direct hedge-fund investments, eliminating funds of funds and the extra layer of fees they charge for pooling money for clients. These institutions, which allocate tens of millions of dollars at a time, can’t invest with smaller managers because their holdings are often capped at 10 percent of a single fund’s assets.

About 66 percent of global investors in a Credit Suisse Group AG survey released in March said they can’t invest in funds with less than $50 million in assets or can only do so in exceptional cases.

“The trickle down of capital to smaller guys is just much more difficult,” Johnston said.

Among big banks and asset managers, UBS O’Connor, the unit of the largest Swiss lender with $5.2 billion of assets, plans to open its maiden Asian hedge fund to investors this year, people familiar with the matter said in October.

Greater China

A team of four fund managers at GLG, led by David Mercurio, a former senior equities manager at Singapore sovereign wealth fund GIC Pte, has been trading with initial capital provided by Man Group. They now oversee about $200 million, said Peach. Man Group (EMG) plans to begin talks with potential investors about opening the Asia market-neutral equity long-short fund to them next year, he said.

Pine River recently talked with potential investors about a new multistrategy, relative-value hedge fund focused on greater China that it created in September under the leadership of Partner Dan Li, said a person with knowledge of the matter.

Li began testing the Greater China offering’s strategies this year with capital from Pine River’s multistrategy hedge fund. His team of five will be able to use Pine River’s almost 70 employees in Greater China and a global support team. About 15 of Pine River’s 18 investment staff in Hong Kong will be involved in the new fund’s management, the person said.

The Minnetonka, Minnesota-based asset manager overseeing $13.6 billion has had an Asian fund focused on convertible bond arbitrage since 2004. Patrick Clifford, a New York-based spokesman for Pine River at Abernathy MacGregor Group, declined to comment on the new offering because it’s private.

Pan Asia

JPMorgan Chase & Co. (JPM)’s Highbridge plans to raise about $250 million for its Pan Asia Multistrategy fund when it opens to investors early next year, people with knowledge of the matter said last month. The New York-based company liquidated its then $1.5 billion Asia Opportunities Fund in 2011 after its manager left. The firm’s current Asia head, Arjun Menon, started the new fund in May with Highbridge money.

Goldman Sachs Investment Partners, set up to allow clients to invest with some of the bank’s top proprietary traders, was raising money for Oryza Capital, its inaugural Asian fund, as of September, people familiar with the matter said at the time. The team, led by Hideki Kinuhata in Tokyo and Ryan Thall in Hong Kong, managed more than $1 billion of regional holdings for the unit’s global fund. They’ve generated annualized returns about four times as high as the global fund since its 2008 inception.

More Institutional

“Investors are more institutional, which might make life more difficult for some Asian funds trying to raise money,” said Ben Williams, Asia-Pacific head of financing sales at Bank of America Corp.’s (BAC) Merrill Lynch unit.

Hedge-fund managers overseeing at least $5 billion of assets have absorbed $127.5 billion of new capital since 2009 as smaller companies saw net outflows, according to Hedge Fund Research Inc. The largest managers controlled 68 percent of global industry assets OF $2.5 trillion as of September, 10 percentage points higher than in October 2008, according to the Chicago-based data provider.

The 2006 crop of Asian hedge-fund startups on average raised $25 million, according to Farhan Mumtaz, an analyst at data provider Eurekahedge Pte in Singapore. The figure hovered between $17 million and $18 million since 2009 before dropping further to $8 million this year.

About 73 percent of the Asian hedge funds set up since the start of 2009 have failed to increase assets “significantly,” said Mumtaz.

Shutdowns, Struggles

Albourne Partners has tracked 23 Asian hedge-fund startups that were started in 2009 and 2010 by former employees of large banks and global hedge funds who raised at least $50 million at inception, often with a backer. Five of them have shut down, while four more are struggling, said Johnston.

Successful startups from the region that gathered $1 billion quickly in the past few years often began with 15 to 20 people, more than many newcomers, said Johnston.

Startup founders risk having to put aside millions of dollars of personal money to run their businesses because institutional capital tends to arrive six months to two years into a hedge fund’s life, said Johnston. New hedge funds may have to raise $350 million to $500 million before getting on the radar screen of institutional clients, he estimated.

“It’s a lot of risk to take personally,” he said. “Unless you’ve been in a very senior role at one of the big hedge funds, you are just not going to have the wealth to do that.”

Few proprietary trading teams remain with large banks, and former managers of global hedge funds who have “the caliber and entrepreneurial attitude” to run their own companies have mostly done so, according to Williams of Bank of America-Merrill Lynch.

“We’re between waves,” he said. “We’re waiting for the next generation to mature.”

To contact the reporter on this story: Bei Hu in Hong Kong at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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