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Brevan Howard, Caxton expand in Asia amid global hedge fund woes

Tuesday, September 20, 2016 - 07:08
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Some of the world's largest hedge funds are expanding in Asia as they seek new areas of growth amid the industry's struggles to make money and retain investors.

[HONG KONG] Some of the world's largest hedge funds are expanding in Asia as they seek new areas of growth amid the industry's struggles to make money and retain investors.

Brevan Howard Asset Management, Caxton Associates and Balyasny Asset Management have incorporated units in Singapore this year, according to filings with the Accounting & Corporate Regulatory Authority.

The trio are considering expanding their footprints in Asia as the US$2.9 trillion global hedge-fund industry has come under fire this year for excessive fees and lacklustre returns, with investors removing the most money since the aftermath of the global financial crisis.

While Asian hedge funds haven't been immune to withdrawals, some investors including China's sovereign wealth fund may increase investments in the region, betting they can beat rivals in developed markets.

"The global industry is struggling to find idiosyncratic returns" in a world driven by quantitative easing from central banks, said Peter Douglas, a principal at the Singapore chapter of the Chartered Alternative Investment Analyst Association.

Even though Asian nations including Japan have seen heightened intervention from central banks, "there are enough inefficiencies, and underlying growth, to make the likelihood of finding returns somewhat higher in Asia than other major regions."

Hedge funds face fewer competitors in Asia, where markets are also less efficient and mature than in the US and Europe, giving top managers in the region a better opportunity to outperform peers trading in developed markets, Roslyn Zhang, a managing director at China Investment Corp, the nation's US$814 billion sovereign wealth fund, said in an interview earlier this month.

Asian hedge funds outperformed global funds in each calendar year from 2012, returning an annualised 9.5 per cent against 5.7 per cent in the four years through 2015, according to Eurekahedge. Asia funds are trailing global funds this year.

Globally, investors pulled an estimated US$25.2 billion from the industry in July, the highest monthly redemption since February 2009, according an eVestment report. Investors redeemed US$12 billion out of Asia-focused funds this year through July, reducing their assets by 11 per cent, data from eVestment show.

Investors Retreat Some of the industry's best-known names, including Perry Capital and Paulson & Co are bearing the brunt of withdrawals as pension plans and other large investors that flocked to name-brand firms during the industry's heyday in the last decade retreat after years of lacklustre returns.

Max Hilton, a New York-based spokesman for Brevan, declined to comment. Matthew Willis, one of at least three Caxton employees listed as a director of the Singapore entity, and Colin Lancaster, a spokesman for Chicago-based Balyasny, didn't reply to e-mails seeking comment.

Brevan, based in St Helier on the island of Jersey and run by billionaire Alan Howard, had a Singapore business from December 2007 to October 2014, a separate filing shows. The firm, whose US$14.7 billion main hedge fund lost money this year, has an office in Hong Kong where the Brevan Howard Asia Master Fund is managed by Kaspar Ernst.

The investment firm shut its Brevan Howard Emerging Markets Strategies Master Fund in 2014, the year its Singapore office closed after the fund lost money amid a rout in emerging markets, a person familiar with the matter said at the time.

Andrew Law's Caxton, which has four offices located in New York, New Jersey, London and Sydney, told investors in a letter last week that a fifth office will soon open. The firm oversees US$7.8 billion of assets globally, according to its website.

Caxton and Tudor, which bet on economic trends by trading everything from bonds to commodities, are among the funds that have trimmed management fees amid losses this year.

Dmitry Balyasny's namesake company, which managed about US$12 billion as of April, is on an Asia hiring spree.

The number of licensed officers and representatives at its Hong Kong office has risen to 23 from 17 since December, the biggest increase since 2008, the year it was approved by the city's Securities and Futures Commission, according to filings to the regulator.

BLOOMBERG