Asian hedge fund seeders find growth in crisis

The head of a joint venture between Samena Capital and Reyl & Cie says the global crisis was tough, but produced good hedge seeding opportunities in Asia

Hedge funds had a bad year in 2008, falling 20%, but for allocators and seeders in Asia it was unexpectedly beneficial in at least one sense. Some of the world’s largest hedge funds in America cut loose Asian experts managing local assets for them. Thus, an allocator did not need relationships with the likes of Citadel, Highbridge Capital or DW Zwirn to access the best managers in Asia.

The managers, with experience of the world’s most competitive hedge funds, were now looking for startup capital. This benefited seeders such as Samena Asia Managers, a joint venture between Switzerland’s Reyl & Cie and Samena Capital

Asian pedigree

Julius Wang (pictured), Samena Asia Managers’ chief executive, says: “The pedigrees in Asia became stronger between 2005 and 2008. The crisis was a catalyst. Managers in the Hong Kong offices, employing proper hedge fund techniques,
extracting returns and alpha from the market, were let go.”

As a result, Samena has invested in the Asia team of Kingdon Capital, the firm founded in 1983 by veteran investor Mark Kingdon. The pan-Asian long/short strategy team lived in New York, and sought independent capital when they returned to Asia.

Wang says: “It is definitely a buyers’ market for what we do, and we can be heavily selective as well.”

Former prop traders of large banks may win $500m seeding from the likes of Blackstone or Goldman Sachs, but finding small- to mid-size managers can be just as profitable, he adds.

“We feel it is appropriate for Asia to be a small and midsized seeder,” Wang says.

Samena’s commitments typically go to managers starting with $25m to $50m. The Samena Angel I fund, launched in February 2007, has since showed its value. In 2008, it made 3.1% (the fund of funds industry fell 21.4%); in 2009, it made 12.8% (the industry gained 11.5%); in 2010, it appreciated 5.5% (the industry was up 5.7%); and last year it rose 3.9% (the industry lost 5.7%). The fund was up cumulatively 26% through April.

Returns from portfolios since Angel I’s investments vary from 122% to -14%, but most have generated double-digit returns since receiving Angel I’s money. The fund currently has five investments, but has exited four others.

Wang explains: “We are looking for managers with strong backgrounds but also funds that can develop independently as businesses.” The fund’s current investments include strategies such as equities long/short, fixed income, and volatility-based managers “that will do well if the markets really drop”.

In equity long/short, Wang’s team seeks stable managers able to make money both long and short. “We are looking for stock pickers that can generate value on both sides,” Wang says, “not for a typical ‘smartbeta long/short’ manager, where a managers says: ‘We will just be 40% net long’.”

Wang is based in Hong Kong and says having a local presence is important – not least to see and avoid managers who have tried to run funds before and trying to raise cash for new vehicles.

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