This Asia-Pacific region offers hedge fund managers a multitude of investment opportunities, and also indirectly led an increasing numbers of investors based in Asia-Pacific to invest in hedge funds in search of higher yield and diversification, according to research done by Preqin.
Most of the investors in the region hail from the highly developed capital markets. Asia Pacific-based investors are largely concentrated in the developed economies of Japan (32%), Australia (31%), Hong Kong (11%) and Singapore (10%).
The outlook for hedge funds among Asia-Pacific-based institutional investors appears positive, with 41% of surveyed investors looking to increase their hedge fund allocations over the coming 12 months.
A further 45% of investors expect to maintain their hedge fund allocations, with just 14% of investors expecting their hedge fund allocations to decrease over the coming year.
With such a large proportion of investors looking to put more money to work in the asset class, and a significant proportion directing this towards the Asia-Pacific region, hedge fund
assets in the region are expected to grow significantly in the near future.
The majority of Asia-Pacific-based institutional investors in hedge funds stated that the asset
class had met or exceeded their expectations in the last 12 months.
Forty-three percent of Asia-Pacific-based investors interviewed felt that hedge funds had met their expectations and a further 38% stated that the asset class had outperformed their expectations.
Only 10% of investors in a similar global study indicated that hedge fund investments had exceeded expectations, highlighting that Asia-Pacific investors have been more satisfied with hedge fund returns than their global counterparts.
This can largely be attributed to many investors in the region directing capital to local managers, and Asia-Pacific funds performing particularly well over the past 12 months. This also shows a substantial improvement on last year when 68% of investors felt hedge funds had fallen short of expectations as a result of disappointing performance during 2011.
In terms of strategies, those trading equities, such as long/short equity, were commonly cited by Asia-Pacific-based investors as having exceeded expectations, while a number of investors felt that funds with a debt focus such as fixed income strategies had fallen short of expectations.
This strong performance of hedge funds relative to expectations has led to an increase in investor confidence in hedge funds; 43% of Asia-Pacific-based investors surveyed revealed that their confidence in the asset class had grown in the past 12 months, and 48% of them felt that
it was unchanged. Only about 10% of respondents reported a decrease in confidence.
Despite the largely positive outlook among Asia-Pacific-based investors, general concerns remain with regards to the hedge fund industry looking forward. A number of Asia-Pacific-based investors said they expected hedge fund returns to be lower in 2013 than 2012, suggesting that there are still concerns about the ability of hedge funds to produce consistent returns.
Risk profile was cited as a key consideration in the fund selection process by 48% of investors surveyed and a number of respondents mentioned volatility as a key issue for the industry currently.
Volatility of returns is typically higher in Asia-Pacific funds than in other funds globally and this is something which may worry more conservative investors. A number of investors also indicated that transparency and performance remain key issues for the industry going forward.