ASIA’S HEDGE FUND INDUSTRYPaul Smith, CFAManaging Director, Asia Pacific

TABLE OF CONTENTS1. Current state of Asia’s hedge fund industry2. Global hedge fund industry3. Trends in Asia-Pacific hedge funds4. Challenges, opportunities, thoughts and conclusions2

ASIAN HEDGE FUNDSClassic hedge fund structure: Open-ended company Domiciled in the Cayman Islands, Luxembourg, Dublin,BVI and similar jurisdictions Corporate governance compliance – independentdirectors, independent fund administrators, independentauditors, etc. Monthly or quarterly dealing Heavy equity orientation Directional3

ASIAN INDUSTRY CHARACTERISTICS Low barrier to entry About 760 funds, managing 138 billion in June 2013;peaking at 200 billion in 2007, 481 in Asia About 40% have only 25 million under management Mainly in Hong Kong & Singapore (Japan has collapsed) China has huge sunshine fund industry 226 funds over US 100 million4


ASIA-PACIFIC HEDGE FUND COMMUNITY,STRATEGY MIXLong only3%CTAmanagedfunds4%Distressed1%Relative value3%Market neutral2%Macro3%Event driven3%Fixed income5%Multi Strategy9%Long short equities67%Source: GFIA6

ASIA NEW LAUNCHES/CLOSURES 1H2013, BYSTRATEGYMacro17%Long shortequities67%Fixedincome17%6 New Launches10 ClosuresSource: GFIA7

THE GLOBAL BILLION DOLLAR CLUBLocation# offirmsAUM US bnJul 2013% of total HFassetsNew York, USA175922.7836.9%London, UK57267.3310.69%California, USA28123.264.93%Connecticut, USA24206.358.25%Hong Kong1727.591.1%Massachusetts, USA15124.854.9%Singapore916.330.65%Sydney, Australia519.240.76%China2100.4%Melbourne, Australia21.870.07%TOTAL GLOBALBILLION DOLLARCLUB3892,04081.6%Source: HFI, Preqin8

BILLION DOLLAR CLUB, ASIALocationFirmsHong KongADM**, Azentus, Brevan Howard, Clearwater**, Janchor, LIM,Macquarie, Myriad, Och-Ziff, Ortus, Pacific Alliance, Penta,Senrigan, TuriyaChinaHillhouse, PrimeJapanHorizon*, Indus*SingaporeDymon, Henderson*AustraliaQIC, Kaiser, Amazon, Boronia, Platinum*managers based in multiple locations** distressed manager with AUM in PE structures9


ESTIMATED GROWTH OF ASSETS/NET ASSETFLOW, 1990 – 3Q20133,000,000Assets US 0,000)19901991 1992 1993 1994 19951996 1997 1998 1999 2000 2001 2002 2003Net asset flow2004 2005 2006 2007 2008 200920102011 2012 YTD 3Q13Estimated assetsSource: HFR11

GLOBAL HF COMMUNITY, BY FIRM AUM TIER,3Q 2013by firm AUM sizeby # of firms1% 2%3%4%6% 5 bn12% 1- 5 bn22%68%7% 500 mil- 1 bn 250- 500 mil52%9% 100- 250 mil 100 mil14%Source: HFR12

GLOBAL HF COMMUNITY BY REGIONINVESTMENT FOCUS (BY ASSETS)Q3 2013Q3 %Asia3.85%Europe7.4%Americas38.85%Asia4.14%13

GLOBAL BILLION DOLLAR CLUB – FIRMS WITHMORE THAN US 5BN UNDER MANAGEMENTRankFirmCountryAUM US bnJul 20131Bridgewater AssociatesUSA81.92J.P. Morgan Asset ManagementUSA/UK50.603Brevan Howard Asset ManagementUK/USA/HK39.734BlueCrest Capital ManagementChannel Islands34.215Och-Ziff Capital Management e28.77Baupost GroupUSA28.58Man GLGUK28.19Standard Life InvestmentsUK27.2810Winton Capital ManagementUK24.371HillhouseChina8Source: HFI14

TOP 10 FUNDS OF HEDGE FUNDS BY ASSETFirmTotal assets (endJune 2013) in US bn% growth in 6monthsBlackstone Alternative AssetManagement498.44%Towers Watson26.832.67%HSBC Alternative Investments26.766.5%UBS Global Asset ManagementA&Q25.44-0.05%Grosvenor Capital Management233.4%Goldman Sachs AssetManagement22.890%Permal Investment Management22.5423.1%Morgan Stanley21.13.79%Blackrock Alternative Advisors18.281.01%Pacific Alternative AssetManagement15.33.38%Source: HFI15

ASSETS RAISED BY NEW FUNDS, IN US BNUS/AmericasEuropeAsia118. 2012H1 2013Source: HFI16

NUMBER OF NEW FUNDS LAUNCHEDUS/AmericasEuropeAsia4337343934H1 201232H1 2013Source: HFI17

GLOBAL HF quidations0-500-1000-1500-2000199619971998 1999 2000 20012002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2Q2013Source: HFR18

GLOBAL # OF FUNDS: HEDGE FUNDS VS FUNDOF FUNDS9,0008,0007,000# of funds6,0005,0004,0003,000Hedge fundsFund of funds2,0001,0000Source: HFR19


TOP 10 ASIA-PACIFIC-BASED HF INVESTORSBY CAPITAL CURRENTLY ALLOCATED TO HFSInvestorTypeCountryCurrent allocation toHFs (US bn)China Investment CorpSWFChina23Future FundSWFAustralia11.7Nikko AssetManagementAsset managerJapan7.8GICSWFSingapore7.4Pension FundAssociationAsset managerJapan4.4Norinchukin BankBankJapan3.1Dai-Ichi Life InsuranceInsurance companyJapan2.3Victorian FundsManagement CorpAsset managerAustralia1.9Korea Investment CorpSWFKorea1.3Toshiba Employees’Pension FundPrivate sector pensionfundJapan1.2Source: Preqin, Sep 201321

BREAKDOWN OF ASIA-PACIFIC-BASEDINVESTORS BY TYPEInvestment Public pension fund5%Family office5%Fund of hedge fundsmanager16%Wealth manager8%Insurancecompany8%Assetmanager9%Private sectorpension fund16%Source: Preqin22

MEAN ALLOCATIONS OF ASIA PACIFIC-BASEDINVESTORS TO HEDGE FUNDS BY INVESTOR TYPE181614% of AUM121086420Private wealthfirmsPrivate sectorpension fundsSovereignwealth fundsAsset managers Superannuation Public pensionschemesfundsInsurancecompaniesInvestor typeSource: Preqin23


Source: Preqin25












GLOBAL CHALLENGES Industry institutionalizing Smaller number of larger tickets Pensions have very little appetite for high beta Higher governance, transparency, infrastructure expectations Fee breaks for larger tickets and longer lock-ups “Small” is US 1bn to US 3bnHigher barriers to entry37

ASIAN CHALLENGES Scalability of strategies Profitability of businesses Competition from Long Only Small Cap Shortage of domestic institutional capital Short track record Less liquidity, shallower markets make hedging difficult TALENT NOT AN ISSUE!!38

OPPORTUNITIES Is Asian long short a differentiated alpha source?- With a few managers yes, but industry wide unproven- China – good; India – poor- Very correlated with global liquidity flows- Japan scores surprising well here Does Asia have more mispriced opportunities?- Yes, BUTo The ability to hedge is more limitedo The stress in a liquidity shock is higher What does Asia offer that’s unique?- Credit cycle – great opportunities in the illiquid space- Currencies and interest rates – differentiated macro opportunities- Direct lending- Small Cap investing39

OPPORTUNITIES China resembles US 50 years ago HNWs Lack of regulation Traditional fund managers geared towards retail Banks function poorly as allocators and deployers ofcapital US industry an asset gatherer from institutions European industry an asset gatherer from retail40

THOUGHTS Last cycle characterized by institutionalization, multiproduct sale to public markets (Och Ziff, Partners Group) Cash/talent business converted to capital business Capital raising dominated by FoFs The next cycle? Return to our roots? Return/HNW-driven Direct, not intermediated access Single product China will be key (Gottex and China Vstone)41

CAREER THOUGHTS! A career lasts 40 years and not 10 No easy money:- 4 out of 5 hedge funds close within five years of launch- 90% of funds fail to achieve scale Worst capitalized and managed industry in the world! HFs don’t train or look after staff:- Only 1% HF staff get paid serious money- Intense pressure Manage your HF career aggressively (no one else will manage it for you) Network furiously – enter hedge funds only after 10 years in a major financialinstitution Know your enemy IF YOU HAVE A WIFE, KIDS & MORTGAGE, DON’T YOU HAVE ENOUGH TOWORRY ABOUT?42

CONCLUSION Darwinian culling will continue Industry bifurcating – institutional/HNW Fees will be maintained for the survivors- Long biased beta fund fees pressurized Liquidity premium strategies to thrive (tapering) New capital will remain tight and sale cycles long Fund of funds industry to continue to transform Allocations to Asia will increase (albeit slowly) Asian institutional and HNW investors are the future43

Future Fund . SWF : Australia . 11.7 : Nikko Asset Management . Asset manager : Japan . 7.8 : GIC . SWF : Singapore . 7.4 : Pension Fund Association . Asset manager : Japan . 4.4 : Norinchukin Bank . Bank : Japan . 3.1 : Dai-Ichi Life Insurance . Insurance company : Japan . 2.3 : Victorian Funds Management Corp . Asset manager : Australia . 1.9 : Korea Investment Corp . SWF : Korea . 1.3File Size: 1MBPage Count: 43