Uncovering alpha in Asia’s hedge fund market: key takeaways from iConnections Global Alts Asia
As the moderator for the ‘Alpha Generators: Uncovering Asia’s Best Emerging Talent’ panel at iConnections Global Alts Asia 2024, I had the privilege of facilitating a discussion on the opportunities and challenges in Asia’s hedge fund market.
Against the iconic backdrop of Marina Bay Sands in Singapore, the session brought together leading allocators and fund managers to share insights and perspectives on this dynamic and fast-evolving space.
Here are my key takeaways from the discussion.
1. Asia’s hedge fund market is growing and diversifying
The Asian hedge fund market is in a phase of growth and diversification. While fundamental long/short equity strategies remain prevalent, there’s a notable increase in multi-strategy funds, quantitative strategies and niche areas such as Japan-focused investments.
2. The rising popularity of separately managed accounts (SMAs)
In Asia, allocators are following the global trend to allocate via SMAs. According to our panelists, SMAs have emerged as an important structure for many investors, even for some new fund launches. Offering a high degree of customisation, allocators can structure investments to meet specific mandates and enhance control over risk and performance.
The panel highlighted that more than 10% of capital from major multi-strategy platforms is now allocated to SMAs. This trend signals a broader industry pivot toward transparency and bespoke solutions.
3. Partnering early for success
Allocators are showing a strong preference for engaging with emerging managers early in their lifecycle.
This approach not only helps secure favourable terms but also allows investors to build meaningful partnerships with managers who offer specialised insights into local markets and opportunity sets. Allocators appreciate an ongoing and regular dialogue with their managers and this is the foundation to long-term relationships.
4. The role of authentic communication
A recurring theme was the importance of authenticity and transparency in building trust with allocators.
Managers who openly share their successes, challenges and lessons learned provide deeper insights into their approach to risk and resilience – enabling allocators to distinguish between skill and luck.
This honest dialogue better positions managers to demonstrate the drivers behind their performance and differentiate themselves in a competitive market.
5. Geographical focus and sectoral opportunities
Japan stood out as a focal point during the discussion. Increased volatility, structural market changes and a growing pipeline of new hedge funds have made Japan an attractive destination for capital.
Meanwhile, across Asia, sectors like semiconductors and AI are gaining traction. With the rise of artificial intelligence and the evolution of global supply chains, these sectors offer compelling opportunities for long and short strategies alike.
Managers who openly share their successes, challenges and lessons learned provide deeper insights into their approach to risk and resilience – enabling allocators to distinguish between skill and luck.
6. Allocators are refining their approach
To navigate Asia’s complex markets, allocators are tailoring their strategies with a more nuanced approach. Many now distinguish between China, ex-China and pan-Asia mandates, enabling them to align portfolios more effectively with their risk-return objectives.
This refined focus allows investors to capture opportunities unique to specific regions while maintaining broader diversification across their portfolios.
7. Challenges for emerging managers
Despite the opportunities, raising capital remains a challenge for emerging managers. Allocators often lean toward established firms with proven track records, but there’s growing recognition of the value that smaller, specialised managers bring to the table.
Success for emerging managers hinges on having a clear, differentiated value proposition that resonates with allocators as well as having a strong infrastructure early on to demonstrate that they are able to handle the complex operational demands as their fund grows.
