Hong Kong poised to become main hedge fund centre for Asia

Author: Margie Lindsay; Source: Hedge Funds Review

Hong Kong expects hedge fund manager registrations to increase at a rate of at least 20% a year over the next few years, according to the Securities and Futures ­Commission (SFC).

The jurisdiction is fast becoming the favoured location in Asia for hedge fund managers setting up shop to exploit opportunities in the region.

Martin Wheatley, CEO of the SFC, said manager registrations by the end of October already matched the whole of 2009. The territory has over 300 fund managers operating in Hong Kong, he confirmed, speaking in an interview with Hedge Funds Review.

Wheatley said assets under management (AUM) based in the jurisdiction have grown by around 25% this year with an estimated $62 billion now handled out of Hong Kong by hedge fund managers.Most of this AUM is concentrated in what Wheatley calls “simple strategies”. Equity long/short strategies represent 45% of the AUM with convertible arbitrage, macro and event driven accounting for around 5%-10% each.

Given the crackdown on short selling in other markets over the past two years, Wheatley was not surprised managers operating in Hong Kong were more focused on equity strategies.

Hong Kong was the only financial centre that did not ban or restrict short selling in any equities during the financial crisis. Wheatley confirmed the SFC had no plans to restrict short selling in future, although it may impose reporting requirements for managers shorting over a ­certain ­percentage.

Wheatley expects AUM growth to continue in 2011 at a similar or higher rate compared with 2010. Although the jurisdiction experienced high redemptions and closures in the aftermath of the financial crisis, he expects to regain pre-crisis levels next year.

“The new money is sticker,” said Wheatley. As more institutional money flows into hedge fund strategies, Hong Kong is rapidly becoming the favoured jurisdiction for hedge fund managers with many of the world’s largest managers already operating from the territory.

Wheatley said over 60% of the funds raised and managed out of Hong Kong are sourced from abroad with the US and Europe leading the way but with Asia also accounting for a ­significant amount.

“Of the funds managed in Hong Kong, not surprisingly, more than 80% are allocated to Asian markets, particularly China but not only China,” he confirmed. “One of the aspects of fund management in Hong Kong is that you’ll see fund managers allocating to a number of markets around the region through a variety of ­strategies.”

Wheatley continued: “There have been a number of high-profile managers coming to Hong Kong recently. We have seen a huge number of hedge funds looking to establish themselves and grow their business in Hong Kong and into China and the rest of Asia.

“Today we have a record number of hedge fund managers based here. The list is very long and it is made up of funds you would look at as world leaders in other centres around the world. What we’re seeing is large, significant growth of fund‑managers.”

Although growth of AUM is still below the 2007 number, he said Hong Kong was “bouncing back very strongly. That’s the story today.”He said managers were using Hong Kong as a proxy for China and getting allocations from banks to trade directly into China as well.