Asian hedge funds to focus on long-selling
Some of Asia's oldest hedge funds are giving up short-selling.
Tantallon Capital, which managed $1.7 billion at its peak, will give up shorting in July. Others such as Indea Capital, which once held $750 million in its hedge fund, and ARN Investment Partners, are shutting down their long/short equity funds and have decided to focus on long-only products.
"Investors are increasingly seeking alternatives to hedge funds, and are looking for intelligent ways to access Asian growth," said Peter Douglas, founder of hedge fund consultancy GFIA. "Long-only unconstrained strategies are a natural beneficiary of these trends."
But few Asian funds are seen as having the stomach or the expertise to put on effective bearish bets. Short selling involves selling borrowed shares, and buying them back later when the price falls, with managers pocketing the difference.
The strategy can be profitable, but a failed short bet can be very damaging, especially in a volatile market like Asia. Adding to the challenges is that Asia has varying short-selling rules and certain countries that bar the practice.
Long-only funds that can invest in a broad range of stocks, such as Singapore-based Arisaig and the Asia Landmark Fund of fund firm New Silk Road Investment, are hitting all-time peak assets, even as Asia's hedge fund industry remains nearly $50 billion below its pre-crisis assets of $176 billion.
Nicholas Harbinson, a former Merrill Lynch and Goldman Sachs executive who founded Tantallon in 2003 with former Morgan Stanley executive Alex Hill, said that short selling had been a distraction and had cut gains from a long-only portfolio.
A long-only Tantallon Fund would have generated a 143 percent return since launch, he said. Instead, the long/short fund produced a 55 percent gain since its inception in late 2003 through May 2012. Its assets have fallen to just $35 million from $1.6 billion in 2007 as investors have put their money elsewhere, data compiled by Reuters showed.
"Shorting is possible. Some people do it exceptionally well," says Singapore-based Hill.
Raj Mishra, founder of Singapore-based Indea Capital, told clients in a letter last month that "shorts have been a drag on performance" of his long/short funds, while the long-only strategy had produced an excess return of 92 percent over the last 92 months. He will focus on long-only funds from July 1.
"The economics of maintaining a fund which is not of big size is not favourable. Also, not a lot of assets are going to long/short funds so then why waste our time there?" Christopher Wong, fund manager at ARN Investment Partners, said.
Wong is shutting down his long/short hedge fund ARN Asian Enterprise after its assets fell to just $26 million from the more than $500 million it managed in 2007. He will now focus on his long-only ARN Newly Industrialised Economies Fund.