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Hedge Fund News

While many global economies have reported economic upturns over the past two years, five years after the 2008 financial downturn, Asian hedge funds and Asian private equity investments continue to struggle. Since so many Asian hedge funds have not met their performance goals, countless managers have left the industry entirely, creating many new hedge fund job openings for experienced fund managers with the willingness and experience to lead these funds in a new direction.

Job openings are expected in both domestic offices, including those in Tokyo, Hong Kong, and at the American and European offices of hedge funds with Asian investment divisions. Europeans especially have contributed to the recent influx of job applications to the Asian private equity sector. Many European applicants are looking to relocate to Asia to escape perpetually high unemployment rates and high taxes in their native countries.

In more positive news for the private equity industry, China, which has historically been very restrictive of the types of investment vehicles allowed within the country, is showing signs of greater regulatory openness. In 2012, Shanghai began operating a pilot program to allow foreign hedge funds to establish subsidiary companies in China to raise renminbi (the Chinese currency) through private placements. China’s Securities Regulatory Commission has hired new personnel that are rumored to be more favorable toward the alternative investments industry. Additionally, the Bank of England has entered into a currency swap agreement for three years with China’s People’s Bank, with the goal of boosting British investment in China.

There is also the potential that hedge funds allowed in Hong Kong could soon be authorized in mainland China as well. Decreased restrictions would open up funding and investment opportunities to a vast population (approximately $1.34 billion). Another opportunity for increased investment is in the proposed listing of Chinese “sunshine trusts” on public exchanges for all retail investors to access. Sunshine trusts are private trust funds with disclosure requirements similar to traditional equity or debt securities, but with fewer restrictions on investment strategies, similar to a hedge fund. By opening up its currency, allowing more foreign investment and loosening restrictions on hedge funds, major changes are underway in one of the world’s largest economic superpowers.

It is telling fact that Asia represents roughly 30 percent of the global stock market, but only 7 percent of hedge fund investment worldwide. Clearly there is the economic groundwork for future growth, though the means may not exist currently. As the hedge fund industry and the major Asian economies continue to evolve, Asia could take on a much more prominent role in the global hedge fund industry.

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The first half of 2012 saw considerable gains in hedge fund asset allocations, with managers netting $20 billion in new cash. This growth in investment was weighted most heavily to the first quarter of the year, where hedge funds saw an injection of $16.3 billion, in comparison to a weaker second quarter where new funds only totalled $4.3 billion. The industry was managing approximately $2.1 trillion at June 30th.

Crain’s New York reported that investors have continued to be attracted to hedge funds despite returns that have lagged equity indexes in the first half of the year. Large hedge funds benefited the most from this renewed interest, attracting a total of $11 billion in the second quarter, while smaller funds actually saw redemptions of approximately $6.9 billion.

This weaker performance is actually reflected further in statistics that show approximately 70 percent of funds experienced net redemptions during the second quarter, while only 30 percent saw an net inflow of funds. This demonstrates a shift in interest from investors of smaller funds to those of larger funds. These larger funds may be perceived as being less risky and, in uncertain times, may be viewed as a safer haven for capital.

Most funds had positive performance in the first half of the year, averaging approximately 1.6 percent based on the MSCI Composite Hedge Fund Index. These positive returns however did not match equity market returns, where the S&P 500 achieved a 8.49 percent return in the first six months of 2012. Hedge funds tend not to promise returns in excess of the market, but rather aim to achieve steady positive returns over longer periods of time. This means that such funds can be ahead or behind equity indexes while maintaining their stated investment objectives.

Positive returns not telling the whole story

These statistics can be puzzling for job seekers that are interested in entering the hedge fund industry. The net positive flow of funds seems to be encouraging news, but it doesn’t represent the whole picture. Smaller funds are under great pressure, as they are seeing redemptions so far this year, which is often the case when equity returns are hot. Declines in the equity market, as we’ve seen so far in July, may encourage a shift back to hedge funds that offer more stable returns.

Larger funds are attracting capital, and opportunities may be available at such firms for talented individuals, but overall consolidation in the industry may result in fewer total openings. The outlook may not be as weak as the dark days of 2007 or 2008, but overall the industry needs to see much more widespread net inflows before opportunities become widely available.

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Recovery of the Hedge Fund Industry

July 30, 2012

Hedge funds have grown substantially over the past decade as an alternative investment class for those that want returns not necessarily correlated with the overall market. These funds do not face the same restrictions as traditional funds such as mutual funds, and this freedom allows hedge fund managers to pursue a variety of unique investment […]

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Hedge Fund Industry Sees Signs of Recovery

July 23, 2012

Over the past several years, the hedge fund industry has struggled to grow, with market uncertainties pushing investors towards safer and more liquid asset classes. In many cases, investors are scared away from hedge funds by media sources that paint all hedge funds with the same brush, labeling them as speculative investment classes. Redemptions Down […]

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High Profile Wall Street Bankers Head to Hedge Funds

July 2, 2012

The Volcker Rule is a specific section in the Dodd-Frank Wall Street Reform and Consumer Protection Act that prohibits proprietary trading by United States Banks and restricts these banks from sponsoring or investing in hedge funds. Banks will have to fully comply with the Volcker Rule by July 21, 2014 and this is impacting the […]

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A Boost in Hedge Fund Start-ups

November 9, 2009

In another sign the economy has turned a corner, the number of new hedge funds launched is growing in size and volume, reports The Financial Times. Citing data from Chicago-based Hedge Fund Research, the article notes that new fund launches rose to 182 for the second quarter of 2009, up from 148 in the previous […]

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Rising Stars of the Hedge Fund World

August 19, 2009

Institutional Investor News runs an award program identifying and honoring up-and-coming professionals in the hedge fund community, based on demonstrated achievement and their potential to evolve into leaders in the industry. Candidates are nominated by their managers, mentors and peers. This year’s Rising Stars were honored at the magazine’s 7th Annual Hedge Fund Industry Awards […]

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