Asia-Pacific-Focused Hedge Funds: Local Fund Managers Outperform Those Based Outside the Region

by Benson Tay

  • 13 Oct 2015
  • HF

The Asia-Pacific region has been growing in prominence over recent years as an investment destination for global hedge fund managers, as they increasingly seek investment opportunities within the region. In March 2015 the Preqin Special Report: Asia-Pacific Hedge Funds showed that over 2014 alone, industry assets in the region grew by almost 30% to $145bn on the back of strong inflows to fund managers based in the region, which typically invest locally. Hong Kong, a gateway to Chinese markets, manages a significant 42% of the region’s hedge fund assets. But do these hedge fund managers deliver superior performance when compared to managers based outside the region?

Preqin’s Hedge Fund Analyst online service suggests that this is the case. Using the custom benchmark feature, we take a closer look at the performance of different categories of hedge funds. The data confirms that over the past six years, Asia-Pacific-focused hedge funds based within the region have consistently outperformed Asia-Pacific-focused funds managed from outside the region. On a three-year and five-year annualized basis these domestic Asia-Pacific-focused funds returned 12.17% and 9.15% respectively, compared with 7.44% and 5.92% for those based outside the region.

Asia-Pacific-focused hedge funds managed from outside the region do not compensate for poorer performance with lower volatility; three-year and five-year Sharpe ratios stand at 1.19 and 0.66 respectively, against the higher 1.44 and 0.90 for Asia-Pacific-focused funds managed by domestic managers. This suggests that Asia-Pacific-based managers are better placed to capture profitable investment opportunities in their home markets and deliver stronger risk-adjusted returns.

With economic growth and the increased provision of financial services ongoing across the emerging and developing countries within this dynamic region, local knowledge of fund managers will continue to play a key role in driving superior risk-adjusted returns for investors. Against this backdrop, the hedge fund management industry in the Asia-Pacific region looks set for further growth.

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