International expansion: US hedge funds head to Asia

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By:
Helen Avery
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According to a survey by Tabb Group, one in four US hedge funds is planning to open a new office outside the US in the next two years. At least 400 offices will open in the next 12 months and, depending on market conditions, a further 400 in the next two years, says the report. The majority of funds opening abroad are multi-strategy. These need to move to markets in which investment opportunities arise.

Top of the list of places to go is Asia (ex-Japan). Forty percent of respondents with plans to open offices outside the US said the location would be in Asia. London was second on the list. More than a quarter of respondents listed the UK as a site for a new office.

This dispels the theory that hedge funds are opting out of London because of changes in tax treatment. Japan ranked third, and Europe ex-UK fourth. Australia and Canada were among other locations to be mentioned, where relationship-building and sales and marketing efforts are gaining ground to support markets where there is liquidity.

Portfolio management and research will be the main functions provided in the new locations. Fourteen percent of respondents, however, said that their foreign offices would replicate their parent offices by having all activities, including trading, marketing and back-office operations, taking place on site.

US hedge funds to expand abroad

Where hedge funds opening a new office outside the US are going

Source: TABB Group


The move to global expansion is attributed to the increasing investment opportunities identified in the emerging markets. The US funds surveyed allocated just 6% to Asia in 2006. This year that allocation is 14%. Allocation to Latin America has doubled, while domestic allocation has decreased by 8%. That said, many US hedge fund managers believe that the bottoming out of the US market is approaching, which will make for some interesting domestic opportunities. Almost 40% of all hedge funds surveyed said that they would be also expanding domestically – many of these funds have been large global players for many years and are now looking to regional expansion.

Asia tops plans for future investments, followed by emerging Europe and Latin America. "In more liquid markets, like Japan and Australia, stat arb funds are having a field day as security mispricing leads to profitable trading," adds the report.