Bloomberg News

Ex-Citadel Manager Boosts Dymon Hedge Fund Assets to $1 Billion

July 06, 2011

July 7 (Bloomberg) -- Dymon Asia Capital, which started a hedge fund in 2008 with capital from Tudor Investment Corp., has doubled its assets under management since March to more than $1 billion after its Asian macro fund outperformed peers.

The Dymon Asia Macro Fund, which has assets of around $900 million, gained more than 13 percent this year through June, Chief Executive Officer Danny Yong said in an interview. The Singapore-based firm also manages the Dymon Asia Currency Value Fund, which is open only to existing investors in its macro fund, said Yong, who previously set up and ran Citadel LLC’s Asia macro trading business.

Dymon joins the expanding pool of billion-dollar hedge funds in Asia that this year includes Senrigan Capital Group Ltd., founded by former Citadel trader Nick Taylor, and Azentus Capital Management Ltd, run by Morgan Sze, a former global head of Goldman Sachs Group Inc.’s principal strategies proprietary trading. Hong Kong and Singapore were home to a combined 18 hedge-fund firms that each managed assets of $1 billion or more as of January, according to London-based data provider HedgeFund Intelligence.

“The factors contributing to the growth of some of the indigenous hedge funds in Asia are the pedigree of the portfolio manager, his past experience as well as the fact that the offering is of institutional level in terms of the team and infrastructure,” said Stephane Pizzo, founder of Lotus Peak Capital, a Singapore-based hedge-fund investing firm. “The larger teams that are well staffed with people who have extensive experience seem to be able to raise more money.”

New Capital

Dymon, which had initially counted on European investors for half of its money, gathered new capital for its macro fund mainly from U.S. investors and pension funds, Yong said.

“We will grow as we continue to show that we can scale,” Yong said. “If we cannot demonstrate the ability to produce at the same run rate of between 15 percent and 20 percent, we will not take in more capital.”

Dymon’s macro fund returned 8 percent in March, its best month this year, as it profited from short-term trading in the days following Japan’s worst earthquake and as the Bank of Japan, together with the Group of Seven nations, intervened to weaken the yen. The fund focuses mainly on Asian currencies, equity indexes and interest rates, said Yong, the former head of Southeast Asia foreign exchange and interest-rate derivatives trading at Goldman Sachs.

Non-Traditional Approach

Dymon also gained from its Asian currency wagers by correctly predicting that the region’s policy makers would allow for more appreciation in their currencies to stem inflation, “as opposed to the traditional approach of aggressive interest rate hikes,” Yong said.

The fund has reduced its longer-term positions and is focusing on “short-term opportunistic trading of the markets”, Yong said. It expects two to four months of “extreme volatility and unpredictable market moves” as manufacturing growth in China, Europe and the U.S. slows and the likelihood that the European debt crisis will worsen, Yong said.

Credit conditions in China are also “extremely tight”, fueling concerns that growth will slow further, he said. China has increased interest rates five times since October to contain inflation, including today’s quarter-point boost to one-year lending and deposit rates. Policy makers have also boosted banks’ reserve requirements to record levels.

“We are the most cautious on the markets as we have been in the last 18 months,” Yong said.

Greece’s debt crisis will need to worsen before the European Union leaders are likely to get together to “make a real decision” to help ease the country’s debt burden, Yong said.

‘Many Moving Parts’

“Right now, there are many moving parts, everyone has different incentives and vested interests,” Yong said. “If we see politicians hold emergency meetings on weekends, that will probably tell you we are inching closer to a solution.”

Many financial rescue packages have been hammered out over the weekend since 2008, including the acquisition of floundering Bear Stearns Cos. by JPMorgan Chase & Co. in March 2008, and the creation of the European Financial Stability Facility in May 2010 to support the euro-region’s most indebted governments, he said.

Dymon’s Asian macro fund started trading in August 2008 with $113 million of initial capital from Tudor, the Greenwich Connecticut-based hedge fund company founded by Paul Tudor Jones, as well as partners and employees, Yong said. It started accepting money from outside investors in August 2009, after it separated from Abax, the asset manager part-owned by Morgan Stanley.

The Dymon Asia Currency Value Fund, with assets of less than $200 million, started in May, Yong said. The fund, which wagers on further gains in Asian currencies mostly through options, will benefit from certain underlying trends in Asian currency markets that Dymon expects to play out over the next 12 to 24 months, he said.

The manager expects to lock in profits and return money to investors in the Dymon Asia Currency Value Fund once it achieves its objectives within the next two to three years, Yong said.

--Editors: Linus Chua, Tomoko Yamazaki

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.

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


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