Institutional Investor's Alpha Magazine - July/August 2008 - (Page 48)

Asia Hedge Fund 25 members of the Asia 25 ranking were not on the list last year. Two are from Tokyo: Tower Investment Management Co., No. 5, a long-short small-cap ﬁrm with $3 billion in assets, and Bayview Asset Management Co., No. 16, which specializes in U.S. and Japanese equities and has $1 billion in assets. Two are from Singapore: Helios Capital Management, No. 23, a long-short ﬁrm with $785 million in assets under management, and Asia Genesis Asset Management, No. 25, a Japan-centric macro ﬁrm with $695 million in assets. And one of the newbies on the list is based in Hong Kong: No. 8 Ortus Capital Management, a $2 billion commodities ﬁrm. In terms of payroll size, however, most of the relative newcomers don’t compete with Sparx and Value Partners. The basic business model of both Cheah and Sparx founder Shuhei Abe has been to build substantial investment staffs, with fund managers at the fore. Sparx’ Tokyo ofﬁce alone is staffed by close to 200 people, with scores more employed elsewhere in Asia. Value Partners has about 90 employees at its sleek new ofﬁces in the Wanchai district of Hong Kong, and many more in China. By contrast, newer funds have kept employee numbers small. Artradis, which was founded in 2001 by Asian derivatives specialists Stephen Diggle and Richard Magides, has just 27 employees. (Diggle spent eight years with Lehman Brothers as a trader in Asia, and Magides worked six years in derivatives trading for Baring Asset Management in London, Tokyo and Hong Kong during the 1990s.) Even with their small staff, Diggle and Magides have been able to grow their assets substantially. Since last March, Artradis’s AB2 Fund — CHRISTOPHER GRADEL, increased 12-fold; at $2.6 billion CO-FOUNDER, PACIFIC ALLIANCE it represents more than half of the ﬁrm’s assets and was up 18.39 percent during the ﬁrst three months of 2008. Julian IngsChambers, an Artradis managing director, says the ﬁrm’s two biggest products — AB2 Fund and Barracuda Fund — maintain a “long volatility proﬁle, which is serving them well in these more volatile markets of recent months.” At No. 12, Hong Kong–based Paciﬁc Alliance Investment Management follows the Value Partners–Sparx bigpayroll model, employing a total of about 200 people in its ofﬁces in Beijing, Hanoi, Hong Kong and Shanghai. The group controls about $1.6 billion in its ﬂagship multistrategy Asia Opportunity Fund. “On-the-ground infrastructure is critical to identify such investments and navigate the sometimes tricky legal environment.” says Christopher Gradel, a Paciﬁc Alliance co-founder, who adds that credit opportunities are particularly strong in Asia now. In most of China short-selling is still forbidden. The ban excludes Hong Kong, but there too regulations are strict. Cheah, the Value Partners CEO, says that only one of his approximately 30 funds — the $346 million China Hedge Fund — is a classic long-short hedge fund and that it took an enormous amount of legal and administrative effort to put it in place. Japan, the second-biggest economy in the world, is perhaps a test case of whether the Asia region as a whole will demonstrate a long-term commitment to greater hedge fund development. Singapore’s Tantallon Capital, a longshort equity player that is ranked No. 11 and whose assets have grown to $1.7 billion from $559 million at the start of 2006, is betting that it will. In early 2007, Tantallon opened an ofﬁce in Tokyo after a renewed pledge by Japan’s Financial Ser vices Agency to make the city a ﬁnancial center for all of Asia. Not every manager has kept pace with the generally explosive growth. From 2006 to 2008, Tokyo-based multistrategy ﬁrm Asuka Asset Management has dropped from No. 6 to No. 20 in our ranking (the ﬁrm controls $846 million, down from $853 million at the beginning of 2006). Another Tokyo ﬁrm, Myojo Asset Management Japan Co., which ranked No. 22 last year with $769 million in assets, falls well short of this year’s $695 million cutoff: Myojo now has only $200 million in assets. “There have been quite a large number of redemptions,” explains its founder and CEO, Makoto Kikuchi (the ﬁrm’s funds were down 9 percent, on average, last year). There are hundreds of small firms in the region, most of them new, many of them one-man shops. Angus McKinnon, an Australian who works solo as a Tokyobased senior partner of a small ﬁrm called Tozai Investment Advisory, says there is “one word to describe the imperative in my situation: survival.” Franco Ngan, CEO of Value Partners — itself a bootstraps ﬁrm that pulled itself up from nowhere in the late 1990s — says small Asian hedge fund ﬁrms, those with assets of $20 million to $200 million, are vulnerable, squeezed by the rising costs of compliance, ofﬁce overhead and volatile stock markets they cannot short. “But the basic attractiveness of Asia is intact,” Ngan says. “Longterm, Asia is the place to be.” Ngan’s boss, Cheah, warns that the short-term outlook for Asian markets is uncertain for ﬁrms of all sizes. “We have no control over the external environment,” he says, noting how the mortgage lending crisis that began in the U.S. has spread stubbornly from its origins. Above all, he adds, the surging price of oil is unsettling Asia, along with record prices in commodities, notably rice. “We should invest in energy and raw materials in Asia,” concludes Cheah, ever the opportunist. The ranking was compiled by Associate Editor Timothy Roberts under the guidance of Assistant Managing Editor Sathya Rajavelu and Senior Editor Jane B. Kenney, with assistance from Researcher Lauren Bennett. To request a questionnaire for next year’s Asia Hedge Fund 25 ranking, e-mail your contact details to alphahedgefundsurvey@iimagazine.com. “On-the-ground infrastructure is critical to identify such investments and navigate the sometimes tricky legal environment.” 48 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - July/August 2008

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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