Panel
Asia Summit 2015 - How to Build a Great Hedge Fund in Asia
- The hedge fund industry in Asia is predicted to experience significant growth due to China's market opening and increased liquidity, though sustained expansion over a decade or longer depends on the development of experienced talent.
- Over the next three-plus years, the industry will require substantially greater investment in technology and IT infrastructure to support a changed delivery mode, with global institutional standards for risk management, compliance, and legal functions becoming non-negotiable.
- Successful funds must be physically based in Asia to generate original research and insights, as offshore operations from London or New York are increasingly inadequate for local allocators.
- The emergence of second and third-generation funds will be driven by the availability of managers with deep regional experience, who cultivate talent by tracking individuals over years rather than relying on headhunting.
- Sovereign wealth funds moving management in-house may limit growth for external managers, while pension funds are expected to increase active allocation within the region over time.
- Managers attempting to grow outside their natural domain without dedicated infrastructure face high risks of failure, necessitating separate teams with distinct track records for new business areas.
- Liquid alternatives will face difficulties in complex event-driven situations like mandatory bids requiring nuanced understanding, preserving opportunities for specialized managers in these areas.
- Retaining and attracting talent remains a primary driver of returns, with the current pool of experienced operational leaders in Asia being extremely limited and often requiring importation from the US or Europe.
- Success requires the ability to navigate diverse cultures and build collaborative team environments, which is described as particularly difficult in the Asian region.
- An "unusual period" in the global economy driven by monetary policies necessitates that managers implement and update risk management protocols, such as circuit breakers, on an annual or bi-annual basis.
- Fund managers must prioritize aligning expectations with investors regarding base cases and five-standard deviation scenarios to prevent conflict during economic storms.
- Infrastructure standards will remain stringent with no "hall pass" available, as investors post-GFC will not accept subpar operational frameworks.
- Managers must avoid subsidizing new ventures with existing investors' capital and focus strictly on domain expertise to ensure sustainable growth.