Research and consultancy firm Eurekahedge Pte Ltd expects hedge funds to sink at least $20 billion more into Asia in 2005, increasing their total investment in the region by a third to $80 billion. The Singapore-based hedge fund specialist said growth in Asia would outstrip the industry's estimated 20 percent annual global growth rate as these funds had a relatively small presence in the region's fast-growing economies.
"This is probably a conservative estimate," Eurekahedge Chief Operating Officer Alexander Mearns said of the forecast increase this year. "It could go up to $85 billion-$90 billion."
Hedge fund investment in Asia rose to $60 billion last year from $40 billion in 2003. Mearns said there were 100 new fund launches in 2004 and another 100 were likely in 2005.
The firm's hedge fund index, the ABN Amro Eurekahedge index, was up 9 percent in 2004 and Mearns said there were several reasons to expect much faster growth in Asia.
Asia's market capitalisation is about 15 percent of global market capitalisation, but its hedge fund share now is about 6 percent of the global industry, estimated at $1 trillion.
"There is a discrepancy there. So it is only natural for Asia to catch up. Handbrakes were put on the industry after the monetary problems of the late 1990s, or growth would have been a lot quicker."
He said a relative lack of transparency, even in the advanced Japanese market where there was little research on mid-sized companies, provided arbitrage opportunities. Fast-emerging economies such as China and India also provided strong returns.
In addition, short-selling rules had become more relaxed across the region and more professionals were embracing the challenges of managing a hedge fund, foregoing traditional, though lucrative, investment banking careers.
While funds were more comfortable investing in Greater China, Mearns said India looked increasingly attractive with annualised returns at 26 percent and 48 percent over the last two years, compared with China's 36 percent and 2 percent.
He said around 20 potential fund managers were mulling India-dedicated funds, of which five to 10 should be launched in 2005.
The number of dedicated India funds doubled last year to 12, while assets under management by these funds and non-dedicated funds more than doubled to $1.35 billion in 2004.
Funds had around $2.5 billion invested in Greater China and that was set to rise by $1 billion in 2005.
Defending the industry against accusations of increasing market volatility, Mearns said the opposite was often true.-
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