Good times for distressed debt
Quantitative strategies have not traditionally been popular among Asian hedge funds. High execution costs have discouraged some managers, and investors in Asia have preferred plain vanilla funds. “Investing in Asia full stop has been exotic enough for them,” says Jay Moghe, CEO of Opes Prime Asset Management in Singapore.
Over the past 12 months, however, a growing number of quantitative strategies have been set up. SHK Fund Management seeded a $10 million quant market neutral Asia fund in June 2005 partnering with portfolio managers Tan Lien Seng, a former trader and an executive director for UBS Securities Asia, and Willy Ballmann, former senior portfolio manager at GIC’s Quantitative Investment Unit. The deployed models are built in house by both managers.
SHKFM’s CEO, Christophe Lee, says that quant strategies can work well in Asia despite former market opinion. “Execution costs have fallen significantly thanks to technology advancements,” he says. “DMA allows direct access to the exchange, and costs are now under five basis points.” Liquidity is also large enough to facilitate trading, says Lee. “Our daily liquidity requirement is at least $1 million, and from that we have a universe of 1,600 stocks to pick from in Japan, Hong Kong, Australia, Korea and Taiwan. The portfolio contains on average 150-plus names each on the long and short side at any given time. Portfolio composition targets market, country and FX neutrality. Unlike some funds setting up in Asia, SHK’s quant fund is not a black box. In Asia, you need some human intervention to check to see if the short side is available and to screen for corporate events such as takeover targets we would pass on.”
Chatchai Ngampackdeepanich and his partner Frank Holle’s Quant Asset Management runs $80 million in two pure quantitative long/short funds similar to a black box, with one global strategy and one Asia strategy. Ngampackdeepanich says that it is relatively difficult to raise money for quantitative funds still as investors take a longer period to monitor the strategy. And since it is a computer-managed fund, he says it really took investors over a year of seeing good returns before they put money in. European investors have shown the largest interest, he says. The model designed by Ngampackdeepanich when he worked at Thomson Financial in South East Asia is highly automated and can even be controlled by his mobile phone. Although the difficulty of comprehending the strategy might put some investors off, annual returns of about 30% over the past two years are putting others’ minds at ease.
