FRM expands Asia fund of funds presence

The Asian hedge fund industry has grown rapidly from 160 funds in 2001 to about 1,000 currently and from $16bn to $200bn in terms of assets under management.

According to Financial Risk Management, a $15bn global fund of hedge funds firm, the Asian hedge fund industry is now mature enough to make it worth setting up a research presence in the region.

FRM chief executive Paul Dunning said: “There are now many more managers and they are of a much higher quality and an institutional style that we would look for when we are running portfolios. They can also take the capacity that we would need to allocate to them.

"There are enough managers that have the scale we need and they are located in the region. Asian markets are clearly growing in terms of depth, maturity and liquidity so there is an opportunity set for hedge funds through the growth there.”

The Hong Kong office will open in June and will consist of both investment and client service staff.

Elaborating on the reasons for locating in Hong Kong, Dunning said: “Just from a manager research perspective it makes sense, and in terms of Hong Kong and the region we have a number of important clients who are located in the region and it is better to be on the ground where your clients are too.

"Seventy five percent of our clients are institutional and a lot are corporate pension funds, banks and insurance companies. Those types of institutions are the main cornerstone of our business and they are the type of clients that we have in Asia.”

The company currently has little allocation to Asia hedge funds but aims to change this situation in the future.

“Obviously we have to find the right capacity with the right type of strategy, but that is happening more frequently, “ Dunning said.

FRM is seeing rapid growth in Asia not only from an investor point of view but in terms of managers setting up.

Dunning said: “Both facets are growing. For example we have a plan to open an office in Seoul. We have some excellent clients in Korea already. We have been very successful in Japan in terms of servicing our clients in the local language and in the right cultural way that you do locally. We feel that in Korea we will offer the same approach to client service there to help us make progress."

The Seoul office is scheduled to open later in the year and will provide services to Korean institutional clients, which are currently served through the firm’s Tokyo office.

When asked if the expansion into Asia involve any change in strategy, Dunning said:

“No. If you think about the components of hedge fund research, one of them is the generation of relationships - these are important in gaining a full understanding - are stronger when you are in the same time zone, and you are able to talk with people more frequently.

"You can have coffee with them rather than talk over the phone. Those things are subliminal – they are not really measurable but now we have enough managers in the region where it is interesting. We value those contacts and we want to expand our ability to maintain relationships.

“We are already quite big in Asia – around 40% of our assets are in Asia. We have allocated a substantial proportion of our portfolio too, so – we have an office in Tokyo with twenty people, we have had an office in Sydney for six years with four people. So we are not new to Asia at all. This is a reflection of the maturity of the market and the hedge fund industry in Asia."

Dunning spells out the investment philosophy of the company:

“In terms of manager selection what drives the company is finding the best managers, who has got an edge, is the edge repeatable, and do they clearly have something that generates alpha to deliver excess returns. Do they have the drive and the energy and skill to repeat that time and time again. Edge is something that we are particularly good at identifying when we are interviewing managers."

He concludes: “We had more than 4,000 manager interactions last year with well over a thousand managers, so there is a lot of contact that goes on. We are constantly sieving information. We are first and foremost a research-driven investment focused organisation.”