Hedge Fund Growth In The Far East

This article first appeared in Hedge Fund Journal on 31 October 2007.

Judy Lee, a Partner in the Corporate and Commercial practice at the Hong Kong office of leading offshore law firm Appleby, examines the growth of hedge funds in three key Far East markets.

Introduction

There are over 10,000 hedge funds worldwide, with a total of US$1.1tr of assets under management (AUM). The Asian hedge fund industry alone has around 1,300 hedge funds holding at least a total of US$160bn AUM, with an average of more than seven funds being launched each month with US$1.25bn in fund inflows.

In Asia, many hedge funds have traditionally been the preserve of private banking customers and distributed through private placement, and had a very high minimum investment, effectively targeting only high net worth investors and out of reach of the majority of retail investors. In 2002, to facilitate access by retail investors to hedge funds without opening up a loosely regulated environment, both Hong Kong and Singapore, through their respective regulatory bodies - the Securities and Futures Commission in Hong Kong (SFC) and the Monetary Authority of Singapore (MAS), introduced specific guidelines and regulations to allow the sale of hedge funds to retail public investors. This move has created a major boost to the amount of hedge fund assets, as well as the number of available hedge funds and their investors. Since then, Hong Kong and Singapore, being the first jurisdictions in the Asia-Pacific region to allow funds to sell to retail investors, have become two of the most popular jurisdictions and continue to be close rivals within the region. This can be confirmed by the recent surveys in July 2007 by the SFC and the MAS which show that, as at the end of 2006, the combined fund management business in Hong Kong recorded a year-on-year increase of 36% to around US$791bn (4.2 times the GDP in 2006), and in Singapore, assets under management amounted to around US$581bn.

This article draws a comparison between Hong Kong and Singapore as hedge fund management centres, focusing on the regulatory framework, the policy initiatives and the available strategies of these jurisdictions. Although both of these international financial centres have different characteristics, in terms of the sectors represented, trading patterns, costs and strategies used, they have similarities as well, such as the quality of communication technology and infrastructure, the availability of quality brokerage, legal and accounting services...