Some of Europe's largest investors are showing increased interest in hedge fund managers in Asia, and advisers based out in the region are emphasising the industry has changed significantly since the crisis.
She welcomes the moves by South Korea’s authorities late last year to encourage a home-grown hedge fund industry but she says more will be needed to fulfil expectations.
“I am pleased to see regulation [in South Korea] is getting revised to encourage new hedge funds to set up, homegrown asset management and brokerage houses to establish hedge funds domestically. This is positive news for the fund management houses and for investors, too.”
Lau says authorities are demonstrating their commitment to the cause by the halving of minimum capital requirements for brokerage houses to launch funds, to 500 billion won, increasing leverage limits to 400% of NAV, and making allowance for high net worth individuals investing in hedge funds.
But she adds authorities will still have to work to attract South Korean talents to establish funds in their domestic market rather than in Hong Kong or Singapore, which have already established good hedge fund markets to take on offshore investor capital.
At Synergy, Lau is invested in South Korea through a hedge fund based in Singapore, mainly because of the manager’s edge and fund performance, regardless of where the managers is based.
“The smaller and niche managers will tend to go extra miles to deliver good performance, thus they prefer markets like Hong Kong and Singapore, which offer them solid infrastructure and well established regulations to attract and take on investor capital globally.
She says some managers may also select to set up in Hong Kong, due to its proximity to many large allocators. Korean managers basing themselves in Korea will, of course, be closer to their domestic fund buyers when they decide to invest.
There is also the possibility, she notes, of managers having researchers and the fund itself in South Korea, while basing the management / advisor in Singapore.
Lau says she would not discriminate against a manager on the basis of their location as “it all comes down to performance and talent, and the quality of returns you are getting”.
In general Korean managers have provided returns below those of their regional peers this year, however the Korean manager Lau has selected at Synergy is up over 20% this year.
Another hindrance to wider investment in Korean funds is their size, at an average of just $25m, according to HedgeFund Intelligence. The institutional buyers dealing in far larger clips may prefer larger pan-Asian funds including South Korea among other markets.