The past two years have been challenging for the Asia-Pacific hedge fund industry; the recent fall of commodity prices and the uncertainty in the Chinese stock market have put pressure on hedge fund managers in the region, mirroring the difficulties faced by its global peers. Given this backdrop, it is unsurprising that hedge fund activity within the region has declined. The 2016 Preqin Global Hedge Fund Report shows that managers headquartered in the Asia-Pacific region managed a total of $159bn, representing a net $14bn (9.7%) increase in assets over 2015, driven largely by performance. This growth is in stark contrast to the year before however, when industry assets in the region grew by almost 30%.
Preqin’s Hedge Fund Online contains detailed information on the 95 hedge funds launched by Asia-Pacific-based managers in 2015, representing a significant decline in the number of funds launched compared to the record high in 2014, and also the weakest year for hedge fund launches in the region in a decade. This is part of a wider trend in the industry globally, which registered a notable decline in new fund launches since its peak in 2012.
The slowdown in the number of new fund launches can, perhaps, be attributed to the lacklustre performance of the industry in 2014. Global hedge funds returned 4.72% over the year, significantly lower than in previous years as growth concerns weighed heavily on financial markets. This affected the ability of Asia-Pacific-based managers to attract capital from institutional investors.
Amid the challenging environment, some hedge fund managers continue to position themselves to offer compelling opportunities to investors. The majority of new funds launched in Asia-Pacific in 2015 were by managers based in Hong Kong (48%), followed by Singapore (15%) and China (15%). One such manager is Hong Kong-based Three Stones Capital, which launched its multi-strategy fund in December to focus on relative value strategies and take advantage of volatility in the region’s financial markets.
A difficult H2 2015, caused by a significant market reaction to the news of a slowdown in the Chinese economy, resulted in Asia-Pacific funds suffering overall net outflows of $1.3bn. 2016 is likely to be another challenging year for new fund launches within the Asia-Pacific region as economic headwinds continue to weigh on fund performance. The more established fund managers will need to highlight track records of long-term risk-adjusted returns to potential investors in order to secure more capital going forward.