Hedge Funds: An analysis of the problems limiting their performance in Asia.

For quite sometime now, most hedge fund investors in the United States and parts of Europe have enjoyed absolute returns from the skills of crafty hedge fund managers, who also depend on the profitability of their management portfolios in order to make money for themselves as well. Sometimes hedge funds may experience declining and negative returns, amidst global equity market challenges, but on the average over many years, hedge funds have consistently made positive returns

Hedge Funds: An analysis of the problems limiting their performance in Asia.

For quite sometime now, most hedge fund investors in the United States and parts of Europe have enjoyed absolute returns from the skills of crafty hedge fund managers, who also depend on the profitability of their management portfolios in order to make money for themselves as well. Sometimes hedge funds may experience declining and negative returns, amidst global equity market challenges, but on the average over many years, hedge funds have consistently made positive returns. 

Such problem is the result of a combination of many factors. For instance, trend less global equity markets may remain in a trading range for quite some time. As a consequence, volatility may be suppressed, and fewer trading opportunities may result for hedge fund managers to take advantage of. 

There is also the concern about high commodity prices, security concerns; hedge fund capacity questions remain an issue as too many hedge funds have been introduced in recent times. While the number of hedge funds continues to grow, there are also new asset inflows into hedge funds, pushing hedge fund’s managed assets to over US$1 trillion mark. While these growths are recorded, new trading opportunities have declined in comparative terms. While these are the global hedge fund dynamics at the moment, the Asian hedge fund market while sharing these global problems also have additional regional matters which has hampered their performance results significantly.

While some hedge funds pursue long positions, it is however incorrect to lump hedge funds into one group by describing them as “bull market animals”. In fact hedge funds use a combination of over twenty different strategies for trading and asset allocation. Some of the problems facing Asian Hedge fund managers come from the regulatory structural deficiencies where many hedge fund jurisdictions in the Asian region have not allowed hedge funds the freedom to pursue any suitable strategies to benefit their portfolios.

Part of the problems facing Asian Hedge fund industry has to do with the structural and unresolved issues of short selling which is an integral part of hedge fund’s investment philosophy. Some hedge fund industry regulators in Asia disallow short selling in the equity markets, such problems would ultimately need to be resolved in order for the Asian hedge fund managers to fully implement any hedge fund trading technique for the benefit of their funds.

There is also the problem that Asia lacks adequate and skilled veteran hedge fund managers, whether we like it or not profiting from any investment requires superior skills and foresight. Take for instance the case of oil price surges recorded recently. Individuals who often lack basic understanding and knowledge about hedge funds and their methods of trading often blame hedge funds for such crisis. Hedge Fund managers often follow their guts and instincts in some cases by pursuing the conclusions reached in their analysis. They may profit from such positions if their analysis are proved right by subsequent events. However if such analysis fails, there are potentials for losses as well. While much effort has been made in Asia to introduce hedge funds to the Asian investors, much remains to be done particularly in the realm of government regulatory arena.

Such work would be needed so as to allow Asian hedge fund managers the freedom and flexibility to use any hedge fund strategy of their choice for trading with little or no governmental interference. The decision by the SEC to regulate US hedge funds remains a highly controversial issue. Once regulatory impediments are removed for hedge fund managers in Asia, the industry will do just fine.

Hedgefundexchange.net Staff

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