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"Assets under management in Asian hedge funds were $120 billion at the end of 2006, and we expect to see that hit $150 billion by the end of 2007"
Hannah Goodwin, Citi |
Citi opened a Singapore branch for prime brokerage in April, adding to its hedge fund servicing capabilities in the region. The firm has had a prime brokerage office in Hong Kong for two years, and opened a hedge fund administration business in Singapore in October 2006. "There are a growing number of global hedge funds moving into Singapore, as well as a number of start-ups, so we felt it important to have people on the ground there in addition to being in Hong Kong," says Hannah Goodwin, Citi’s head of prime brokerage for Asia-Pacific. At present there are just two employees in Singapore but Goodwin says the intention is to increase the staffing level. Citigroup has 19 people in its prime brokerage division in Hong Kong, and a presence in Australia.
According to Eurekahedge, there were 167 fund launches in Asia in 2006, compared with 254 in 2005 and 201 in 2004.
The growth in the number of funds establishing themselves in the region has spurred a number of prime brokers and hedge fund administrators to establish a local presence. Morgan Stanley and Goldman Sachs still dominate as prime brokers in the region but in addition to Citi, UBS has been expanding its efforts, and Bear Stearns, Merrill Lynch, Lehman Brothers and Barclays Capital also have a presence.
Goodwin says that traditionally Asian hedge funds have tended to have just one prime broker, often because the infrastructure did not allow for more. However, with a growing number of global funds entering the region, and with managers there becoming more sizeable, this is changing. Citigroup has developed an open-prime system that facilitates the use of more than one prime broker. The number of administrators has also shot up. Until 18 months ago, HSBC, Fortis and Citco were the main providers of hedge fund administration. But Goodwin estimates that another eight have set up since.
Given that the Asian hedge fund market is still much smaller than that of Europe and the US, the obvious question is whether there is enough room for all these service providers? But Goodwin says the growth forecast for the region should allow for several competitors. "Assets under management in Asian hedge funds were $120 billion at the end of 2006, and we expect to see that hit $150 billion by the end of 2007. Global hedge funds continue to set up here, as do start-up funds. We also expect to see some hedge funds coming out of the traditional long-only houses. In particular, 130/30 structures which we have already witnessed in Australia. We can service those structures through our prime broker," says Goodwin.
Although the number of start-ups in the region is decreasing, Goodwin says that the pace of growth is slowing. "One reason is that the talent pool of managers that would have started their own funds in Asia is diminishing," she says. "Many of these managers are being snapped up by the large global hedge funds that are increasingly setting up shop here." Although the number of start-ups is decreasing, sizes of funds at launch are larger than ever, she adds. "This year alone we have seen three funds reportedly start up with over $1 billion. That is unheard of. Typically the funds here started with $10 million to $20 million."
Goodwin says Citi prime brokerage will consider offering its services to funds of all sizes. It’s a topic of debate in the region, as according to managers some of the established prime brokers have been kicking out small funds.