Quant Macro Investing

Risk Taking Disciplined

FT: DE Shaw and other hedgies look to Asia

Posted by Gwen Robinson on Mar 09 12:06.

While hedge funds have been virtually stampeding out of Japan for the last few years, DE Shaw, the $24bn hedge fund founded by Shaw, is set to open offices in Tokyo as well as Shanghai, as part of a concerted push to expand its Asian operations.

The group’s Shanghai office, according to the FT, will mark its first expansion into mainland China, with a team of private equity analysts focusing on acquisition opportunities in the country. The Tokyo office, meanwhile, will deal with such functions as marketing and account management.

The two new Asian offices come several years after DE Shaw opened a Hong Kong office in 2007 to focus on Chinese private equity opportunities, and set up in India. If the group’s earlier Asian moves are anything to go by – DE Shaw’s Indian operations are now its largest base outside the US, employing about 700 people in the country – the China and Japan offices have a rosy future.

Indeed, several other large hedge funds are now looking to beef up their regional presence, including GLG, Moore Capital and Soros Fund Management which are all planning to open Asian offices, adds the FT.

China, Singapore, and Hong Kong maybe. But Japan stands as a counter-intuitive proposition. Having spent the last few years pulling back from Japan, few big funds are bothering to set up shop in Tokyo, where regulations are onerous, taxes are high and margins on equities bets are often depressingly slim.

Just to reinforce that view, here, courtesy of EurekaHedge, is a rather striking snapshot of hedge fund presence – both in terms of assets under management and numbers of hedge funds – in the main Asian centres.

(Note that apart from assets under management, the actual number of hedge funds operating in Japan is omitted as many hedge fund groups offering Japan-focused funds are based outside the country – largely due to regulations and taxes that deter funds from putting people on the ground in Tokyo)

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In the eyes of some Japan watchers, DE Shaw’s Tokyo move reflects a view that, amid investor pessimism about the country’s uncertain economic outlook , Japan has been oversold.

As Richard Armstrong of hedge fund consultancy Eureka Capital Partners told us on Tuesday:

There has been increasing interest in Japan lately because it has been so out of favour for the last four to five years

Of course, he notes, there is also a seasonal factor, with a general uptick of investor interest in Japan inthe first quarter of the year, which tends to dissipate over the second quarter.

Right now, says Armstrong, there is a “huge surge of start-up interest” driving a crop of new hedge funds in Asia – but most of these are setting up in Singapore and Hong Kong.

Meanwhile, EurekaHedge in a preliminary report issued on Tuesday found that hedge funds overall returned to positive territory in February, up 0.52 per cent after being marginally down in January.

Geographically speaking, hedge fund returns across most regions were marginally positive for February, although early reports showed that North American managers, who make up 65 per cent of all hedge funds globally, posted gains of 1.41 per cent, adds EurekaHedge, explaining:

Regional managers capitalised on the marked improvements in market sentiment on the back of some strong earnings reports, positive movements in the US dollar and commodities as well as improved manufacturing data and the Fed’s decision to maintain low interest rates.

As for emerging markets and even Japan: Latin American funds were also positive with a 0.48 per cent returns in February while Asia ex-Japan and Japan funds returned nominally positive performances. Not surprisingly, problems in the eurozone led to negative results by the region’s managers, who were down 0.66 per cent in February as the euro weakened amid speculation of Greece’s sovereign debt default.

Asia, in that context, is looking like a safe – and potentially lucrative – haven. A quality that is clearly not lost on David Shaw and his peers.

March 10, 2010 - Posted by | Hedge Funds

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