Asia's hedge fund seeders go for 'uncorrelated' strategies

Sun Hung Kai & Co

08/12/2022 05:37

By Summer Zhen
       HONG KONG, Dec 8 (Reuters) - With traditional equity and
bond portfolios underwhelming investors this year and China's
market returns letting them down, Asia's most active seed-fund
providers are ploughing money instead into hedge funds with
strategies not correlated to major macro trends.
    That means hedge funds may struggle to raise start-up
capital in the coming months unless their portfolio is set up to
exploit market volatility or a futuristic theme, such as clean
energy.
    HS Group, a large Asia-based seed capital provider with a
portfolio of alternative asset managers and assets under
management (AUM) of more than $7.5 billion, invested in three
hedge funds in 2022.
    Among them is Aregence Capital Management, a Singapore-based
India-focused equity long-short fund. Another is Mercator
Partners, which runs a low-net decarbonisation long/short global
strategy, buying firms in the new energy supply chain while
short-selling companies with outmoded business models or growing
carbon policy liabilities.
    "This year has really been pivotal," said Michael Garrow,
chief investment officer and co-founder of the Hong Kong-based
HS Group.
    "With central banks reducing liquidity to fight inflation,
the indexes are down and many of the strategies that grew
popular over the past decade are also down, meaning tech,
internet and early-stage growth."
    Garrow did not disclose the size of each investment but says
this is an interesting time to be involved in emerging markets
beyond China, because they are less crowded. The equity funds HS
Group invests in also have active short positions.
    Both equities and fixed-income investors have struggled to
make money this year as the U.S. Federal Reserve and other major
central banks raised rates swiftly to fight inflation, removing
the tailwind of easy money. Asian investors faced greater
challenges as China's markets were slammed by the country's
strict zero-COVID policies and a property sector collapse. 
    There were only 24 new hedge funds launched in Asia in the
first half of 2022, raising just $1.8 billion, according to data
from With Intelligence. That compares with 44 new hedge funds
launched in the first half of 2021 and 78 for the full year. 
    A Goldman Sachs Prime Services November survey of
allocators, largely Asia-Pacific investors, showed
"uncorrelated" strategies were the most popular, selected by 31%
and exceeding conventional long-short equity strategies.
    SHK Capital Partners, the fund management subsidiary of Hong
Kong property giant Sun Hung Kai & Co, committed $100 million to
GCO Asset Management in June, a fund that trades macro themes
such as Fed rate policy or Russia's shutdown of gas supplies
through long or short bond positions.
    SHK said another fund they put money into, ActusRay
Partners, a Hong Kong-based macro-agnostic, quant fund focused
on European equities, has seen its AUM balloon to $300 million
from $20 million when it launched in March 2021.
    China-based wealth managers and other institutional clients
at SHK Capital Partners are diversifying away from strategies
relying on the home market.
    "Global managers who are less directional, less correlated
to the equity market, such as market neutral managers, are the
type of managers investors are looking at these days, broadly
speaking," said Marcella Lui, head of funds distribution and
investment solutions at SHK Capital Partners.
 (Reporting by Summer Zhen; Editing by Vidya Ranganathan and
Edmund Klamann)
 ((summer.zhen@thomsonreuters.com; 852-3462-7739;))