Kim Eng launches hedge fund broking

Singapore-based Kim Eng Securities has established a broking unit in Hong Kong dedicated to servicing the global universe of hedge funds. KE Absolute is the new name for the Asia-based team of EGS, an independent hedge fund broker in the United States. Kim Eng was an early investor in EGS, which began operations in 2000, and has now taken over its Asian operation.

Tom Ashworth, a founder of EGS, will stay on in Hong Kong as KE Absolute's managing director. "There is a market gap among the bulge bracket firms in the hedge fund area," he says. "I worked at Morgan Stanley. It is a very fine shop. But like all the major brokers it is geared to the big long-only funds, and a fund with less than $150 million in assets gets ignored. What the big players don't see is that hedge fund assets have a turnover of up to eight times per annum, and they are open to trading ideas."

He says the big brokers may have a desk or a specialist catering to hedge funds, but KE Absolute is a niche player devoted to the industry, backed by a parent that is independent. In particular it is offering research tailored to hedge funds.

"Bulge bracket research focuses on country, sector or stock. Ours is based on styles." KE Absolute breaks its research down to five trading styles: opportunistic, market-neutral, arbitrage, relative value and event-driven. Each has its own sub-categories.

A different approach to research means a different trading expertise. For example, KE Absolute needs traders to be able to execute pairs trades involving, say, different share classes, or foreign and domestic classes.

Ashworth argues that, although the bigger brokers are moving in this direction, they remain fundamentally driven by products. Moreover their clients get bombarded with ideas from the firm's various product desks. KE Absolute claims it lacks this bias and can provide clients with integrated trading ideas across the region. It also is more willing to trade smaller stocks in Asia, as it doesn't face the same issues of scale and liquidity as the major global players. KE Absolute accepts soft-dollar arrangements as well as traditional cash commissions.

Its biggest ideas come from Taiwan, home of Kim Eng's major shareholder, Yuanta Core-Pacific Securities. It is also active in Korea and Singapore, as well as Hong Kong, Thailand and Japan. Its clients from EGS days are based mainly in the UK, the west coast of the US, Hong Kong and Singapore.

Ashworth is recruiting. For now KE Absolute relies on Kim Eng's global presence to execute deals but it wants to establish its own presence in London and Singapore and, down the line, New York.

Ashworth's team now numbers 10, including Jonathan Lloyd, head of sales, but he predicts it will go to 15 over the next few months. Finding people with the right skills is difficult, however. "Finding people who can talk to hedge funds is almost impossible," Ashworth says. "Hedge fund sales and research people don't exist." He notes big brokers haven't matched the growth of the hedge fund industry focused on Asia. Instead he is looking at people with derivatives experience.

He is now hiring a head of research whom he cannot yet name.