HK hedge funds' AUM surges to all-time high

Hong Kong’s hedge fund industry AUM surged to an all-time high last year, according to a new report.

Hedge fund managers have also been focusing their assets on equities and investments in mainland China, the data has shown.

In a report released by Hong Kong’s Securities and Futures Commission (SFC) yesterday*, the city’s hedge fund AUM rose to $120.9 billion last year, up from $87.1 billion in 2012, the year in which the SFC last conducted the survey. That represented a 38.8% rise from 2012.

This year’s survey shows a trend towards more investment by Hong Kong-based hedge funds in mainland China and the rest of the world outside Asia.

While Hong Kong and the rest of Asia Pacific’s share of investments declined from 52% in the last survey, which was released in 2013, to 45.4% this year, mainland China’s share rose from 13.4% to 18.5% while the rest of the world – outside Asia-Pacific – saw its share rise from 34.5% to 36.1% over the same period.

That shift has been accompanied by a rise in equity-linked investment strategies. Long/short equity hedge funds’ share has risen to 40.8%, from 33.1% in 2013. Multi-strategy hedge funds’ share declined over the same period: from 30.8% to 28.1% of AUM.

Furthermore, there has been a shift in strategies underlying multi-strategy hedge funds. In the 2013 survey, long/short credit and risk arbitrage-focused event driven strategies – along with long/short equity – featured among the most common underlying strategies offered by multi-strategy hedge fund managers.

In this year’s survey, market neutral equity, equity-focused event driven and long/short equity were cited as multi-strategy hedge fund managers’ leading underlying strategies.

Investors based in Hong Kong and the Americas have also become increasingly important sources of funding for Hong Kong-based hedge funds, accounting for 7.9% and 43.6% of AUM respectively. Investors based outside these locations have seen their share decline from 51.3% in the 2013 survey to 48.5% in this year’s survey.

One driver behind this has been the reduced importance of European fund of hedge fund managers. Last week, data provider Preqin released a report highlighting that Europe-based fund of hedge fund managers have seen their AUM decline by $27 billion between the end of 2013 and the end of 2014. In contrast, fund of hedge fund managers based in Asia Pacific and the Americas saw their AUM rise by $5 billion and $56 billion over the same period.

The SFC surveys show that investors based in the European Union accounted for 24.3% of Hong Kong hedge fund AUM in September 2010, declining to 17.7% in September 2014.

At the same time, fund of hedge funds’ share of AUM declined from 21.1% in September 2012 to 19.5% in September 2014. The largest source of investment in Hong Kong hedge funds – high-net-worth individuals and family offices – also saw a decline in their share: from 22.6% to 21.4%. In contrast – often US-based and equity-focused – pension plans and endowments/foundations’ combined share rose from 22.5% to 25.9%.

Heide Heiden-Blunt, Asia-Pacific head of the Alternative Investment Management Association Limited (AIMA) said there had been a noticeable shift to Asia in recent years.

She said: “The last few years especially have seen a definite emergence of global portfolios now being managed by Asia homegrown or Asia based ‘2nd gen’ managers.”

Heiden-Blunt added: “Asia is now seeing regular footfall from those US institutions keen to seek Asia exposure.”

*Report of the Survey on Hedge Fund Activities of SFC-licensed Managers/Advisers, 357 active hedge fund managers responded to the survey and provided figures for assets under management and/or advisement up to end September 2014