Increasing long-short hedge funds in Asia

First Trust High Income L/S fund, recently, announced its monthly share distribution amount $0.105 per share that will be given by October. The company offers diversified close end investment - investment in diversified portfolio in US and foreign markets i.e. emerging Asian markets. It includes mostly high yield corporate fixed income securities. Asia hosts some of the fastest growing new millionaires, adding at the rate 12 of per cent per annum as per 2017 data of Capgemini. To trap new opportunities in the region, new Asian funds are opening offices at different locations.

New Asian hedge funds

Hedge funds was conceptualised in US and Europe, and now, at least eight families with multi country businesses are opening offices in Asia to start their investment funds. It includes AJ capital which is applying for license. The firm will fund with a capacity of $182 million.

The family offices by rich Asians are staffed by investment bankers, hedge fund traders and analysts. The investment strategies are well managed targeting public and private markets. For example- the Tolaram office payroll include trader Ankit Khandelwal, Liew Han Piow, who runs equity derivatives at United Overseas Bank and Goldmanite Lee Kim Leng. These funds are growing where the institutions such as Thirdrock Asian Affluence Fund gained 8.3 per cent in six months from January 2015. At the same time Eurekahedge Asia L/S Equities Hedge Fund Index grew 24 per cent.

Surveys and trends

Some of the established funds believe these family enterprises have to go a long way to achieve the level of instuitionalization and professionalism required for the business. Hedge funds Schroders survey on global investment companies found there is prime motivation in hedge funds to get uncorrelated returns. The risk adjusted returns and market beating strategies are secondary to it.  

In the current economic scenario global bonds and equities appear expensive. The traditional diversification through government bonds is appearing risky against historical data and inflation. Investors are seeking alternative products with absolute returns.

Hedge funds can invest across various classes and styles to generate positive returns and managers need to define their objectives and constraints. This can be highly diversified and some of the well managed funds and alternative asset classes and trading styles fail to deliver as required. Some investors are fee sensitive and cannot be offered the traditional model.   The unrealistic risks and high fee can prevent funds from delivering. Some funds have illiquid instruments and disproportionate assets.

The correlation between global equities and hedge funds increased in the past years, and the returns from long and short are now different from traditional long only funds. The lack of expected returns does not justify the fees and there is more need to include transparent ways for diversification.

The founder of short selling hedge Jim Chanos says short loses money as stocks go up and investor should not put all money in short. Most longs include instruments such as ETFs, and to try to protect shorts downside can increase risk. Most public stock exchanges involve high frequency traders who buy / sell and cut trading price.

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