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The Asian hedge funds' assets shrank by 36 percent in 2008 as performance losses and a sharp rise in the redemptions impacted the industry. Capital invested in Asian hedge funds shrank by more than the global average, declining nearly $16 billion to little over $71 billion in the fourth quarter of 2008, according to data from Hedge Fund Research.
The Asian hedge fund industry peaked at $111billion in assets in 2007, yet the hedge funds industry in Singapore has undergone significant development and growth during this time. A stable cost structure and a clear and conducive regulatory and tax environment has primed Singapore into one of the most desirable places in Asia for fund managers to open their own boutique hedge funds. Since 2002, an increasing number of former proprietary desk traders, institutional fund managers and private bankers have struck out on their own to start their own businesses. According to Eurekahedge, a Singapore-based hedge fund consultancy, Singapore overtook Hong Kong in terms of hedge fund launches.
Given the market inefficiencies and arbitrage opportunities available in Asia, US-based hedge fund managers have come in pursuit of alpha. With Asian investors' changing preference in financial instruments, fund managers are attracted to tap on the growing local appetite for alternative investments. The market entry strategies have presented themselves in varied forms - from creating alliances with the local fund managers, to sending their representatives to launch operations from scratch, and even to identifying and acquiring successful local hedge fund managers. Most Singapore-managed funds are still relatively small. While the interest in hedge funds are growing among the Asian investor base, the search for investor capital has historically been primarily focused on the European capital markets. An increasing number of Singapore-managed hedge funds are also starting to consider seeking further recognition by applying for a listing on stock exchanges, most notably on the Irish Stock Exchange. Listing on an exchange allows the funds to use the status as a marketing tool to potential investors; the market's view is that it adds visibility to the fund and gives the investors more comfort from the perception that the fund is under some regulatory oversight.
The equity long/short managers still make up the largest percentage (in terms of numbers) of funds in Singapore, other fund strategies are also expanding at an aggressive pace. Strategies such as managed futures/contracts for differences and global macro are making their way into Singapore. In addition, single country focus funds on Korea or Japan are becoming more common. From the vast array of strategies that are surfacing an investor niche is fast becoming an important differentiating factor to cater to diverse investor preferences.