Hedge funds look towards Asia to diversify portfolios

Bangkok Post, November 13, 2007

The global hedge fund market looks set to remain vibrant, with Asia increasingly becoming a hotbed for investments due to robust economic growth in the region leading fund managers said yesterday.

"Going forward, Asia ex-Japan will see tremendous growth in investments by hedge funds," said Jeffrey Tucker, the founding partner of FairfieldGreenwich Group, a $15-billion hedge fund that is growing rapidly in the region.

Asia, which accounts for just 9% of the global $1.8-trillion hedge-fund industry, is set to see "quintessential growth over the next 2-3 years," he jaded.

Mr. Tucker said that current focus of the hedge-fund assets were in the continental United States, which accounts for 45% of overall asset allocation. But that would gradually decline with the nearly 9,900 funds in operation likely to shift towards Asia and Europe.

"These two regions would have a bigger say in the future, as institutional investors start to look at hedge funds as part of their risk-management strategy." he said.

Hedge funds have been viewed with suspicion in this part of the world after their key role in the attack on the Thai baht in 1997, which triggered an economic crisis that embroiled the entire region and other emerging markets such as Brazil and Russia.

But Mr. Tucker says that hedge funds are likely to see robust growth, helped by institutional investors who are set to gradually pump in $1 trillion by 2010, up from $500 billion now.

Despite the ongoing sub-prime mortgage crisis and economic slowdown in the US, some hedge funds with more than $1 billion are still witnessing huge inflows from investors.

Hedge funds, Mr. Tucker says, tend to flourish during downturns as was witnessed during the technology-related sell-off a few years ago. It was during this period, he says, that hedge funds saw tremendous growth. The industry swelled to 9,900 funds from 600 a few decades ago, and assets under management jumped to $1.8 trillion from a mere $38 billion in 1990.

He says that the funds these days are far more focused and specific than during the 1990's.

Today general funds account for a mere 10% of the global assets of hedge funds, down from 41% in the 1990's, with equity investments accounting for close to 28%.

Meanwhile, investors in hedge funds present at the seminar were soothed by the words of Nobel economics laureate Robert Mundell, who said that despite all the turmoil in the global financial markets, a US recession was still unlikely.

"Every time there was a downturn in the housing market in the US, the county's economy went in for a recession, but this time it seems that they are escaping it as the focus of the global economy has changed to other parts of the world." He said.

The European Central Bank has injected more liquidity than any bank in the world at 94 billion euros. In August it helped avert a liquidity crisis in the global markets and they seem to have recovered since then, said Mr. Mundell.

He believes that despite the worst case scenarios, the US economy would grow by 2% to 2.5% next year.