Global financial markets ended the 3rd quarter with declines as the US Dollar surged in the month of September, driven by a combination of weak European economic data, social unrest in Hong Kong and increased geopolitical tension in the Middle East.
Despite the highly successful IPO of Chinese technology company Alibaba, global equity markets posted declines across most regions; with US declines led by small cap, Energy and Commodity sensitive sectors.
European, Asian and Emerging Markets equities posted mixed performance with declines in the UK, Russia, Brazil and Turkey partially offset by gains in China, Argentina, Italy, Japan and Switzerland.
HFRX Macro/CTA Index posted a gain of +1.54 per cent for September as the US Dollar surged and equities fell, the 5th consecutive months of gains and the strongest monthly gain since 2009; HFRX Macro leads all strategy Indices YTD with a gain of +2.55. The HFRX Emerging Markets Composite Index posted a gain of +0.55 per cent, with gains concentrated in Emerging Asian equity exposure.
HFRX Equity Hedge Index posted a narrow decline of -0.12 per cent for September as equities declined, with positive contributions across Fundamental Growth and Market Neutral strategies offset by declines in Fundamental Value. The HFRX Fundamental Growth Index gained +1.22 per cent with contributions from exposure to Global Healthcare and Emerging Asia; the Index leads all sub-strategy indices YTD with a gain of +7.08 per cent.
The HFRX Market Neutral Index posted a gain of +0.35 per cent, with gains in Fundamental, factor-based models, as well as quantitative, trading oriented strategies. The HFRX Fundamental Value Index posted a decline of -0.67 per cent with mixed contributions across US large cap and technology exposure.
HFRX Relative Value Arbitrage Index posted a decline of -0.70 per cent for September, as equities fell and credit widened, with negative contributions from credit multi-strategies and convertible arbitrage managers. The HFRX Convertible Arbitrage Index and the HFRX Multi-Strategy Index posted declines of -0.74 per cent and -0.64 per cent, respectively, as high yield credit widening was only partially offset by short hedged exposures and implied convertible volatility increases.
HFRX Event Driven Index posted a decline of -3.15 per cent for September as equities fell and credit widened, with positive contributions from Merger Arbitrage managers offset by Equity Special Situations and Distressed strategies as the high yield credit widened.
KKR & Co has sealed its first Asia hedge-fund partnership backing a startup by the former regional chief of York Capital Management, according to people with knowledge of the matter.
Bloomberg reports that Feng Hsiung’s Hong Kong-based Acion Partners Ltd. will start a pan-Asia event-driven hedge fund in the first quarter of 2015, investing in equities and credit.
The private-equity firm led by billionaires Henry Kravis and George Roberts, based in New York, will take an unspecified minority stake in Acion as part of the broader partnership, they added.
Private-equity firms like KKR, Blackstone Group LP and Carlyle Group LP have been diversifying businesses beyond leveraged buyouts, in part by buying stakes in hedge-fund firms. KKR has been scouting for such opportunities in Asia, which has fast-growing economies and diverse markets where reforms are creating new opportunities, said the people.
It chose Hsiung, who resigned at the end of April as CEO of York Capital Management Asia (HK) Advisors Ltd., because of his experience investing significant amounts of money in Asia across asset classes and building a business, a rare combination in the region, said the source.
Asian event-driven funds returned almost 23 per cent in 2013, beating the 15 per cent return of the average Asian hedge fund, according to data from Singapore-based Eurekahedge. There have been USD856 billion worth of mergers and acquisitions involving an Asian company this year, a 6 per cent increase from a year earlier, according to data compiled by Bloomberg.
High volatility, or price swings, makes a hedge-fund strategy focused solely on Asian stocks less attractive.
KKR’s partnership with Acion is different from a traditional hedge-fund seeding deal in which an investor buys an equity stake in a manager for a share of its fee revenue. In addition to its financial investment, KKR is providing support including helping Hsiung build his team, the people added.
The hedge-fund business of KKR includes the Prisma fund-of-hedge-funds unit that KKR bought in 2012, and the strategic partnerships, the people said. Prisma has had previous investments in Asia-based hedge funds.
The Hedge Fund Association (HFA), a leading global nonprofit trade and nonpartisan lobbying organization, announced today two new leadership appointments focused on the expanding hedge fund community and institutional investor demand in Korea, demonstrating HFA’s enduring commitment to growth and diversity.
Serving as HFA’s new Korea Chapter Regional Co-Directors, Robert Kim, Global Advisor for Alternative Summit Korea, and Raymond Kang, CEO of Prodigy Capital Management LLC, will develop educational programs with unique content and high level networking opportunities. Their inaugural Korea Hedge Fund Roundtable for established fund managers, top-tier Korean institutional investors and Korean financial regulatory leaders is scheduled for November 6, 2014 at The Westin Chosun Hotel in Seoul, Korea, with further conference details to be announced by HFA.
“Following the 2012 launch of HFA’s Asian presence in Beijing and Shanghai, China, we welcome this expansion to Korea, led by two well-respected industry professionals,” commented HFA President Mitch Ackles.
The Korea-based hedge fund community, comprised of approximately 20 firms, estimated at USD2.7 Billion assets under management as of June 30, 2014, is expected to grow significantly in the next 2 years based on research by the Alternative Summit Korea team within The Korea Economic Daily. Major Korean institutional investors each managing approximately USD2B Billion to USD435 Billion according to The Korea Economic Daily, are reportedly in various stages of activating hedge fund investment mandates.
From a global perspective, there are just 12 Korea-dedicated hedge funds and approximately USD2 Billion of hedge fund assets under management are allocated to Korea as of August 2014, according to data provided by Eurekahedge.
Robert Kim is a Global Advisor of Alternative Summit Korea (team operating within Korea Economic Daily News) which has organized one of the largest alternative investment conferences in Korea. Robert has been involved in investment, financial, and M&A sectors of the Korean and cross-border markets for over 25 years, including fundraising, investment banking, risk management, international joint ventures and strategic international alliances. He is Chairman of Asia Management Strategy Institute and a founding member of Korea Hedge Fund Council (KHFC) and serves as an Executive Advisor to a number of emerging technology companies.
Raymond Kang is founder, CEO and managing partner of Prodigy Capital Management, LLC, which, together with affiliated firms, provides funds of funds, portfolio construction and managed account platforms. Raymond also introduces U.S. and European hedge fund managers to Korean institutional investors. He is the chairman and one of the founding members of International Network of Korean Entrepreneurs’ New York Chapter, and one of the founding members of Korean-American Society of Entrepreneurs. He also founded two Dot.com companies and led a distinguished career in marketing and advertising prior to founding Prodigy Capital Management.
Asset owners are expecting fund administrators to have the technology and expertise to assist them to meet ever changing financial and regulatory requirements without increasing their fees. This places tremendous pressure on them to become leaner and more streamlined as organisations, which includes reducing manual processes not only to increase efficiency but also to lessen the risk of costly human errors.
According to Rex Wong, managing director within BNY Mellon’s Asia asset servicing business, fund administrators are also expected to administer portfolios that deal with complex stock lending and collateral management requirements. “Our clients turn to BNY Mellon to tap into our collateral management expertise and fund accounting expertise,” he says. “Due to this stringent and changing regulatory environment, we have been required to enhance our systems and technology to assist our clients with their compliance. We have also invested heavily in hiring staff with the requisite local market expertise and experience.”
New regulations like FATCA and AIFMD have created both opportunities and challenges for fund administrators. “We have been investing in tools to help us address the increase in reporting requirements. In addition, our role as a custodian has helped us address the depository needs of managers in Europe,” explains Dan McNicholas, head of alternative investment sector solutions, Asia-Pacific, at State Street.
“As a global custodian,” he continues, “we play a key role in the securities financing market for beneficial owners, investment managers, including hedge funds and prime brokerages. Investors and asset owners need to adjust their current expectations toward the financing market because the impact of Basel III will be far-reaching and disruptive to some strategies and markets. Treasury functions and balance sheet optimisation will play a more important role for many managers as some will find the financing market constrained due to the regulatory cost of capital.”
Remi Toucheboeuf, Asia head of product management for asset and fund services at BNP Paribas Securities Services, claims asset owners for the most part see the regulatory changes as having a positive effect on their lending programmes. “They understand this is now a very well-regulated and well-structured market which allows enhanced portfolio returns,” he says. “Most asset owners are willing to engage with a partner who can demonstrate competency around current and upcoming regulations for their fund type and in their local jurisdiction. Their partner should be in a position to also show they can consistently generate returns across all asset classes against a strong indemnified agency lending programme or with a robust balance sheet on the principal side. In addition, there is greater pressure on trustees and custodians to provide more comprehensive solutions. We are also required to be knowledgeable on local regulatory requirements in each jurisdiction to advice clients.”
Regulation is the fundamental driver of Northern Trust’s evolving approach, notes Peter Jordan, head of global fund services, Asia-Pacific at the firm. Like Mr. Toucheboeuf, he also points out that increasingly clients require solutions that help them meet their changing regulatory requirements, which also means that external administration organisations need to offer trustee and depositary services in multiple locations.
The tiny Pacific island of Nauru, which was briefly during the 1960s and 1970s one of the world’s richest countries, has been granted a reprieve from financial ruin in its battle against a US hedge fund.
Financial Times reports that Firebird Global Master Fund, part of New York-based Firebird Management, had claimed it was USD27m by the Nauru government and obtained a court order to freeze the nation’s bank accounts – a move that threatened Nauru’s ability to pay its public servants and provide basic and health services.
However, Nauru’s claim that its accounts – held by Australian lender Westpac – have sovereign immunity was upheld on Friday by the New South Wales supreme court.
The Westpac accounts hold about AUD11m in aid funds donated by Australia, New Zealand, the UN and the World Health Organisation. Australia argued that if the funds were not set aside, it would instead have to be diverted to pay creditors.
The Firebird fund owns bonds issued by Nauru on the Japanese stock exchange in the late 1980s, on which the government subsequently defaulted. The hedge fund sued Nauru in 2011, with a Japanese court ordering the island nation to pay Y1.3bn (then equivalent to AUD16m). Firebird alleged that Nauru ignored offers to negotiate the debt, and claimed it was now owed almost double that amount.
Justice Peter Young gave Firebird a week to appeal, during which time Nauru’s bank accounts will remain frozen. Nauru must still repay the USDA31m but the court ruling means the Japanese court decision will not be used to enforce Firebird’s claim in Australian courts. Firebird will appeal against the decision.
.During the 1960s and 1970s Nauru enjoyed the spoils of surging demand for phosphate, a key ingredient in the manufacture of fertiliser. The mining boom made the country one of the world’s richest on a gross domestic product per capita basis. But by the late 1980s, with its natural resources depleted, the government was saddled with large debts and forced to sell assets.
Now the 21km sq island, with a population of about 10,000, is afflicted with severe social and environmental problems.