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December 9, 2005
Asian investors' mindset dovetails with trend
Family offices in Hong Kong and pensions in Tokyo are no strangers to hedge funds, but Asia has not been an easy market for American fund managers. The trend toward institutional-quality hedge fund businesses, however, fits in with Asian investors' requirements.
Any notion that Asian investors are backward is misplaced, argues Richard Horodeck, managing director at Drake Management LLC and head of the firm's Asian product development. As he sees it, Asians were ahead in imposing standards that appeal to institutions around the world.
If you succeed in Asia, you can succeed in other places as well, he says. To borrow from the song: If you can make it there, you can make it anywhere.
From this perspective, the key is to develop not only an investment strategy and operations but also a business model and a brand. Asian investors have always wanted a viable business with a recognizable brand, said Mr. Horodeck.
In his experience, the penalty a decision maker faces for committing a mistake in investing is higher in Asia than in the West. Investing in an established brand reduces the risk of a mistake.
But many hedge funds focus only on portfolio management, and put off staffing and financial controls. Formulating a business plan is not a priority. The result: When returns disappoint, there is nothing left to hold clients. Typically smaller funds are in this predicament.
A few managers have developed the personnel, the controls, business strategy and name recognition—they fit the Asian model. These tend to get institutional money and run multi-billion dollar funds. The model has validity across the industry, Mr. Horodeck said.
Before joining Drake, he ran a consulting firm in Japan. Drake manages close to US$3 billion in assets in fixed-income strategies.
In the past American managers could ignore Asian markets—wooing clients required too much work and was too difficult. But it's no longer easy to raise money in the West, and Asia beckons.
Asia is, of course, many places, each with its own idiosyncratic features and different types of investors. The large institutional money is in Japan, but Chinese family offices are another potential source of capital.
Hong Kong and Singapore attract managers that invest in Asian markets. Hong Kong is the gateway to mainland China, but it can be buffeted by Chinese political winds. Singapore has tax and regulatory advantages, but it's relatively new to hedge funds. Figuring out where to go is only the first step.
-HedgeWorld.com-
Posted by su at December 9, 2005 11:13 AM