Greater China-focused hedge funds draw investors

Greater China-focused strategies have seen a marked increase in AUM, accounting for 13.5% of the $125.5 billion in Asian hedge fund assets, from 4.4% in 2006, according to Eurekahedge.

“Over the years, the growth in China has attracted a number of hedge funds to boost investments into the region as managers seek out opportunities in a vibrant and growing economy,” notes Eurekahedge in its latest report.

However, investors have likely found the performance of Greater China hedge funds to be less than vibrant, with an average loss of -13.05% in 2011 – one of the most volatile years for mainland stocks.

Asian managers running global funds have the greatest share of regional industry AUM at 21.4%. A few of the biggest billion-dollar funds run out of the region are global macro strategies, and include Dymon and Ortus. 

The growing popularity of China comes as Japan-focused hedge funds have seen their share of regional AUM fall to 14%, from 33.1% in 2006. Eurekahedge attributes the decrease to the closure of several Japanese hedge funds in recent years.

In terms of yield, event-driven strategies have emerged as Asia’s best-performing hedge funds on a three-year annualised basis with an 8.26% return, trumping the 1.35% achieved by the region’s most prevalent strategy, long/short equity.

Distressed debt funds also fared well, earning clients an annualised return of 7.77% over three years, as did fixed income with 6.57% and relative value with 6.37%.

Conversely, Asian long/short equity funds continue to lag in performance, returning 1.06% in the first eight months of the year. The strategy has the highest market correlation among its peers.

Stakes of the region’s prime brokerages remain little changed from end-2011, although leaders Goldman Sachs and Morgan Stanley have seen their market share by AUM drop slightly. Goldman had 27.7% of the market at end-July, a marginal decline from 28%. Morgan Stanley has likewise seen a small fall to 21.1%, from 22.4%     

UBS is in third spot with 10.7%, followed closely by Deutsche Bank (10.4%) and Credit Suisse (7.3%). The top five prime brokers collectively hold 77.3% of market share, down from 83% in December 2011.

There is a more equitable distribution among the top 10 players, notes Eurekahedge, as hedge funds diversify their prime brokerage relationships and take on more than one provider.