The Business Times

Hedge fund Capstone eyes US$1.5b Asia investments

Published Thu, Sep 8, 2022 · 12:02 AM

US hedge fund firm Capstone Investment Advisors plans to allocate about US$1.5 billion of risk capital to Asia by the second quarter of 2024, according to chief executive officer Paul Britton.

The manager of US$8.9 billion in assets started trading out of its new Hong Kong office in August. While all 8 current employees in the city have been recruited locally, it plans to relocate some people from other offices next year as Hong Kong eases quarantine rules for incoming travellers, Britton said during a telephone interview from New York.

Capstone is a rare recent foreign entrant to the Hong Kong hedge fund industry, amid concerns about political tightening and Covid restrictions. More than a third of fund managers have moved some or all regional and global roles from Hong Kong elsewhere, while nearly 70 per cent spoke of difficulty in hiring and retaining expatriates in a recent survey by a local industry association.

Capstone has 26 investment teams globally. They employ derivatives-based strategies, seeking to profit from volatility in various assets and pricing gaps between related securities. It previously traded Asia out of its London and New York offices, said Britton.

He said Asia would represent “a significant portion of a growth initiative for Capstone”, adding that the US$1.5 billion target includes leverage. Britton declined to specify what percentage of the firm’s risk capital will be deployed to the region.

“We’ve always felt Asia very interesting in being part of the global jigsaw of opportunity set,” he added. “The next 2 or 3 years are going to be some of the best years just for opportunity set, just simply because there is so much uncertainty.”

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The expansion is taking place when there are questions over whether the US can rein in inflation. Rising prices are also a problem in Europe, while economic slowdowns in China and other Asian countries are forcing central banks to take a different path.

The divergence in central bank responses for the first time in about 15 years is creating more fertile trading opportunities for Capstone, Britton said.

Capstone made the decision to open an Asia office 2 years ago, after China in 2019 scrapped quota restrictions for foreign investors trading its domestic markets, he added. It pushed ahead with the plan after Beijing’s wide-range regulatory tightening hammered the country’s stocks, putting the Eurekahedge Greater China Hedge Fund Index on track for its worst year since the 2011 European sovereign debt crisis.

“There are certain participants who see some of the actions of the Chinese regulators as potentially more isolating,” Britton said. “I believe China will become a global player in the capital markets.”

The firm settled on Hong Kong, after considering all the regional hubs, he added. “In the relative-value community, Hong Kong has got a wealth of talent.”

Its Hong Kong-based staff, including regional chief operating officer Alain Bordoni, is equally split between expatriates and Hong Kong and mainland Chinese professionals, a mix that Capstone would like to maintain in the future, Britton said. BLOOMBERG

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