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.
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-listed 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.
