According to a recent Bloomberg report, all is not well in the Asia hedge fund job market. Many high performing professionals that joined the rush to the promising boom in Asian hedge funds are now returning to the United States or Europe, or are alternatively leaving the industry for other areas of finance. Funds in the area have struggled to grow their asset bases, and regulatory changes certainly are not allowing for a positive outlook.
Asian Hedge Funds Continue to Struggle to Attract Assets
Following the 2008 global financial crisis, many overseas hedge funds saw a flight of capital returning to traditional destinations such as the United States. Unfortunately for the hedge fund desks of Hong Kong, Singapore and Malaysia, this capital has failed to return in the subsequent rebound. Currently, Asian hedge fund assets sit 28 percent below their 2007 peak, putting real pressure on firms to reduce costs in these jurisdictions. Globally, the opposite has been true, with hedge funds seeing a 21 percent increase in total assets to a new high of $2.3 trillion in December of 2012. This represents a real shift in assets back to traditional investment markets.
Performance has also been an ongoing issue in the region, with only 39 percent of Asian hedge funds entitled to performance fees for being above their high-water marks at the end of 2012. Without stronger bottom line results for investors, the attractiveness of investing overseas will certainly continue to decline, putting even greater pressure on hedge funds in the region.
Promise Not Living Up to Expectations
For many hedge fund professionals that made the move to Asia, the promise of expansive opportunity and high compensation has remained unfulfilled. According to Will Tan, Managing Director of a leading Singapore financial recruiting firm, “five years on, many of these guys are tired of the huge swings in hedge-fund compensation and some have not tasted the sweet promise of hedge-fund payouts.”
The dissatisfaction with results in Asia has led some individuals not only to reconsider their careers geographically, but leave the hedge fund industry altogether. According to Tan, many “long-time veterans (are) leaving the hedge fund space for more stable careers in finance.”
Smaller Funds Comprise the Majority of Asian Hedge Funds
One major shift over the last several years has been the emergence of smaller hedge funds in the Asian market. Currently, 54% of Asian hedge funds manage less than $50 million, which is up considerably from 39 percent just 5 years ago. Unfortunately for the smaller funds, the risk management policies of large investors sometimes prohibit allocating investment to those managing less than certain critical hurdle amounts, further reducing the number of interested investors.
Uncertainty and Volatility to Remain
While the story surrounding Asian hedge fund employment certainly does not appear too optimistic today, it’s important to keep the region in perspective. The geographic area contains several of the world’s fastest growing economies and is also home to an increasing amount of privatization of traditional government monopolies. These trends bode well for the investment industry, and there may be a cyclical rebound in future years. That said, increasing regulation and concerns over risk management from investors based in traditional markets will continue to weigh on the industry. As a result, uncertainty and volatility will continue to be underlying attributes to the Asian hedge fund market for the foreseeable future.