Asian hedge fund capital-raising slows in Q2

Asia-focused hedge funds raised $89.4 billion in the second quarter of 2011, a mere 1% increase from the $88.1 billion in assets gained in Q1, according to data provider Hedge Fund Research (HFR).

While both quarterly figures exceed the $83.4 billion raised by Asian hedge funds in all of 2010, the growth rate lags behind the 4% rise in total global inflows, which grew to $910.6 billion in Q2 from $878.4 billion the previous quarter. It is a continuation of an ongoing trend seen by Asian prime brokerage executives whereby industry recovery in the region falls below the global pace.

The slowdown in asset-raising can partly be attributed to the fewer number of launches, with 60 Asian hedge funds established in the first half of 2011, compared with 96 during the same period last year, according to industry research firm Eurekahedge.

Another reason is the generally smaller size of Asian hedge funds, which may find it difficult to attract capital from large institutional investors if they manage less than $100 million in assets. Asia-focused hedge funds with more than $500 million in assets managed 62% of the regional industry capital in the first half, according to HFR.

HFR has a bullish view on the regional sector, noting that in the first half of 2011, the global hedge fund industry has had to contend with dampened investor sentiment brought on by volatile commodity and equity markets, and the debt crises in the US and Europe.

“Global investors are allocating to the Asian hedge fund industry not only as a means to insulate themselves from the volatility of these trends but also to position their portfolios to benefit from uncorrelated opportunities in coming quarters,” says HFR president Kenneth Heinz.

Good returns will also help to drive inflows. Asia ex-Japan hedge fund managers returned an average of 1.19% in July, delivering the best returns across all regions, according to Eurekahedge. It compares to Japan’s 0.39% returns, North America’s 0.58% and Europe’s -0.91 loss.

However, in the first seven months of 2011, Asia ex-Japan managers have only returned an average of 0.18%, compared to North America’s 2.84% and Japan’s 1.34%. European hedge funds have been the worst performers by region, yielding losses of -0.62%, Eurekahedge data shows.