Bloomberg News

Hedge Fund Expansion Fuels Hong Kong Central’s Office Demand

June 22, 2011

June 23 (Bloomberg) -- Hedge funds including SAC Capital Advisor LP and Ortus Capital Management Ltd. are expanding in Hong Kong, fueling demand for space and driving rents higher in the world’s most expensive office market.

SAC Capital of Stamford, Connecticut is in talks to boost its space by 20 percent after adding employees at its more than 5,000-square-foot office at York House, said two people with knowledge of the matter, who declined to be identified because the information isn’t public. Ortus Capital, a $2.5 billion macro hedge fund based in Hong Kong, this month moved into premises 20 percent bigger in St. George’s Building, said a person with knowledge of the matter.

Prime office rents in Central business district rose 8.5 percent from January to the end of May as financial services companies boosted hiring in the city, according to Jones Lang LaSalle Inc. Hong Kong and Singapore are luring global hedge funds returning to the region following their retreat during the 2008 credit crisis.

“Hedge funds and private equity are capable of paying higher rents and they make decisions fast,” said Bernard Chu, director at Sagarmatha Capital Ltd., a Hong Kong-based real estate broker specializing in hedge funds and private equity firms. In Central, “they’re willing to pay around 5 to 10 percent more compared with investment banks, law firms and accounting firms, and they’re willing to pay an even higher premium for grade A buildings such as the International Finance Centre.”

Record Fund Inflow

The $3.6 billion capital that investors added to Asian hedge funds in the first three months was the largest quarterly inflow into the regional industry, according to Chicago-based service provider Hedge Fund Research Inc. The number of hedge funds focused on Asia increased to 1,055 in the first quarter, the highest since the second quarter of 2008.

Nine Masts Capital Ltd., led by Wang Bing, former Asia head of Deutsche Bank AG’s Saba proprietary trading desk, is negotiating to more than double its 1,500-square-foot office space after its assets under management surged 10-fold to more than $300 million since it started trading in May 2010, two people with knowledge of the matter said.

Matchpoint Investment Management Asia Ltd., a Hong Kong- based hedge fund co-founded by Och-Ziff Capital Management Group LLC partner Raaj Shah, and Sean Debow, former Asia managing director of Los Angeles-based Ivory Investment Management LP, found a new location where it doubled its space, according to a person with knowledge of the matter.

More Space

The 4,300-square-foot L. Place office it moved into last month provided more room after its staff tripled to more than 15 since its September 2009 inception, and its assets under management jumped fivefold to $270 million, the person said.

Instead of moving, Senrigan Capital Group Ltd., the $1 billion Hong Kong-based hedge fund backed by Blackstone Group LP and led by former Citadel Investment Group LLC manager Nick Taylor, took an adjacent unit at Wheelock House after it more than doubled its workforce to at least 20 people since it started trading in November 2009, said a person with knowledge of the matter.

Janice Tang, Ortus’s spokeswoman; Katarina Bendle, who represents Senrigan; Elaine Davis, Nine Masts’ chief operating officer; Jonathan Gasthalter, an outside spokesman for SAC Capital, and Matchpoint’s Debow declined to comment.

About 25 of the biggest global hedge fund firms are seeking to expand in Asia, according to a Credit Suisse Group AG report last year. About 75 percent of the top 100 global hedge funds, ranked by Alpha Magazine based on assets managed, will likely have a presence in Asia, according to the Zurich-based bank’s prime brokerage unit.

Actively Looking

“If someone’s still seeking office space in Central at this moment, they’re likely someone who’s willing to pay a very high rent,” said John Siu, Hong Kong-based general manager at Cushman & Wakefield Inc., the biggest closely held property services company. “Hedge funds have been very actively looking for additional space since the market recovered from the credit crisis and it looks like this trend is continuing.”

Hong Kong’s prime office rents jumped more than a third to $2,066.35 per square meter at the end of last year, the highest in the world and almost double the cost of the City of London, according to Colliers International Research.

Average rents for new tenants at top-tier buildings including Cheung Kong Center and International Finance Centre in Central stood at HK$159 a square foot per month at the end of May, according to Jones Lang LaSalle. Only 1.3 percent of these buildings are vacant, compared with the 3.7 percent average for the rest of Central, the Chicago-based property brokerage said.

Less Bargaining Power

Hedge funds and asset managers may also be paying more for leases because they usually take up space of between “a few thousand to under 10,000 square feet,” Siu said. That gives them less bargaining power compared with investment banks that take up multiple floors at premium buildings with areas up to “tens of thousands of square feet,” he said.

Central’s higher rents drove some banks and professional services providers such as law and accounting firms out of the district to less expensive areas. Allianz Global, the investment unit of Allianz SE, Europe’s largest insurer, which occupied about 20,500 square feet in Cheung Kong Center, last month moved to nearby Citibank Plaza, where average rents are about 30 percent lower. Deutsche Bank AG last year completed its relocation to the International Commerce Centre in West Kowloon.

--Editors: Linus Chua, Andreea Papuc

To contact the reporters on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net; Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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