Singapore Hedge Fund

Alternative asset management in Singapore

Recruitment starting again for hedge funds based in Singapore and Hong Kong.

From, some good news on Asian Hedge Funds with new activity noted in Singapore and Hong Kong. The dark days may at last be over for Asia’s hedge fund sector, but recruitment is still selective, senior and sales-focused, with a real recovery not expected until next year.

Hedge funds are making a minor comeback after suffering their worst year on record in 2008, outperforming global benchmarks and experiencing an inflow of new assets, according to data provider Eurekahedge.

Asia has experienced a lot of the recent action. Winton Capital Management, for example, is starting a new fund in Japan and hiring staff in Hong Kong – its expansion coming just months after rivals like GSO Capital Partners, HBK and Ramius retreated from the region.

And ex-bankers are seizing the opportunity to start up their own firms in Asia. The list of budding fund managers includes: Nick Taylor, ex-head of Citadel Investment’s principal investments business in Asia and Europe; Shafiq Karmali, a former Goldman Sachs trader; and Edwin Wong, previously a Lehman Brothers MD.

Hedge fund recruitment is for now small-scale and focused on the front office. Jared Ng, regional consulting director, PeopleSearch explains: “Because short-term revenue is essential for the survival of companies to meet their short-term liability, revenue-generating jobs are more in demand. As a result, there have been more openings for sales positions.”

Peter Douglas, Asia Pacific council member for the Alternative Investment Management Association, says funds want experienced professionals who can hit the ground running. “In Singapore, Artradis, for example, has been taking on some senior people, basically taking advantage of a cyclical opportunity to add talent that’s now available,” he adds.

Funds that have not been so badly affected by the financial crisis are starting to recruit again after lying low for the past nine months, says Angela Kuek, manager, banking and financial services at Hudson in Singapore.

Douglas thinks the current fund inflows in Asia are coming mainly from specialist investors. The “real volume” is likely to return next year when more capital enters the market. “Asset size directly drives revenues and therefore the capacity and inclination to hire,” he adds.

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Savvy Fund Sees an Asia Backfire

The traders behind a Singapore-based hedge fund that outperformed last year are betting government efforts to stabilize Asia’s markets will backfire, yielding opportunities in foreign exchange and credit.

Last year, Artradis Fund Management’s flagship Barracuda fund returned 27% by betting on price swings in Asian stock markets through derivatives, or financial instruments whose value is based on an underlying investment. By contrast, the benchmark MSCI Asia ex-Japan index fell 27% in 2008.

While the plays on stock volatility were good to Artradis last year, now the firm is changing gears.

“We felt that the glory days of equity derivatives business in Asia were going to be restricted going forward,” partly because hedge funds bid up the prices of derivatives, squeezing returns, says Steve Diggle, one of the firm’s founders.

In addition, issuance of structured products containing derivatives has slowed, as wealthy individuals who bought these products in the boom have been burned and pulled back. “In order to grow, we needed to broaden to other markets and products,” Mr. Diggle says.

Artradis is wagering that government efforts in Asia to stimulate the economy and create stability will actually create market imbalances and, as a consequence, lucrative trading opportunities.

“Asian markets have a long history of government involvement,” with mixed results, says David Dredge, 44 years old, who recently left his job as deputy head of local markets at Royal Bank of Scotland Group in Singapore to help spearhead Artradis’s new effort.

Mr. Diggle and Richard Magides, in their mid-40s, previously worked together on the derivatives desks of Barings Bank in Singapore, where the rogue trader Nicholas Leeson caused the bank’s collapse in 1995. They founded Artradis in 2002 with about $4.5 million of mostly their own money. Since then, they have built it into one of the largest home-grown Asian funds, with about $2.5 billion under management.

When shares were rising, their funds produced lackluster returns. The situation reversed in mid-2007, when markets got clobbered and their bets on volatility paid off. Even amid success, Artradis was hit with massive redemptions of approximately $2.3 billion, which the firm attributes to the liquidity squeeze that forced clients and competitors to sell assets and raise cash quickly.

Also hurting the fund was the bankruptcy of Lehman Brothers, which the fund says owes it more than $100 million because of trades in which Lehman acted as counterparty and assets that have been frozen at the firm.

For investors in Asia, the ripple effects of U.S. stimulus efforts offer a road map, Mr. Dredge says. He points to moves by the U.S. Federal Reserve to stimulate lending. Concerns about inflation and the U.S. dollar have partly prompted investors to dump U.S. Treasury bonds, pushing up their yield and undoing Fed efforts to keep rates low. The trick for investors, he says, is to spot opportunities where government actions won’t be enough to override market forces.

The past week, short-term bank lending rates rose sharply in Asia as the region’s banks displayed concerns about the Fed’s ability to manage rates. “It follows that interest-rate volatility in the U.S. will be mirrored in Asia,” Mr. Dredge says.

Separately, the dollar’s weakness has led to gains in most Asian currencies this year, including the rupiah, the rupee and the baht. But expections that the dollar will continue declining could come to an abrupt halt, Mr. Dredge says. Some currencies, such as the Australian dollar, have weakened slightly this week amid worries that an economic recovery isn’t coming to fruition anytime soon.

Another possible macro shock could come if China and Hong Kong let their currencies appreciate against the U.S. dollar. While Hong Kong pegs its currency at a fixed rate to the dollar, China allows its currency to fluctuate, albeit in a highly managed way.

Big changes seem unlikely with either currency right away, though the wisdom of being so tightly bound to the dollar has come into question as fears grow about the dollar’s long-term prospects. Recently, Hong Kong’s monetary authority has intervened aggressively to uphold the 26-year-old peg.

From Laura Santini at the Wall Street Journal

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