Asia’s large hedge funds are turning to companies outside the region to deliver better returns on the billions of dollars they have raised.
Azentus Capital Management Ltd., with about $800 million in assets, generated more than a third of its 17 percent return last year outside Asia, said a person with knowledge of the performance. Tybourne Capital Management (HK) Ltd. reported $848.8 million worth of U.S.-listed securities at the end of March and Myriad Asset Management Ltd. disclosed $476.9 million, according to their 13F filings with the U.S. Securities and Exchange Commission.
“Previously, you generally saw Asian funds having only an Asian mandate,” said Matt Pecot, Asia-Pacific head of prime services at Credit Suisse Group AG (CSGN) in Hong Kong. “Nowadays, more funds launched within the region have expanded that to take advantage of the insights that they have gathered in Asia and put a portion of that money to work in the U.S. or Europe.”
Funds that have raised at least $1 billion after 2009 are turning to global companies that benefit from Asia’s growing consumer and production power, and which are more frequently traded, according Credit Suisse and Bank of America Corp.’s Merrill Lynch unit. They also are stepping outside their home base after the MSCI Asia-Pacific Index generated an annualized return in the three years to April only about a fourth of the MSCI World Index’s.
Roger Denby-Jones, Azentus’s chief operating officer, Scott Gaynor, his counterpart at Myriad, and Tanvir Ghani, COO at Tybourne, declined to comment on the funds’ holdings and returns. The 13F filings may underestimate their investments outside the region as they include only securities on a quarterly SEC list, including American depositary receipts of Asian companies, not those traded in Europe.
Azentus initially disclosed holdings in Micron Technology Inc. (MU:US) in its second quarter 2013 13F filing, when the largest U.S. maker of memory chips was trading at an average (MU:US) price of about $11.
Micron completed the acquisition (MU:US) of bankrupt Japanese rival Elpida Memory Inc. in July 2013 amid industry consolidation to reduce supply glut. The stock has more than doubled to a high (MU:US) of $28.66 in the 12 months to June 2. Micron was the fourth-largest of Azentus’s $130.1 million of 13F holdings at the end of March.
About 226 stocks listed in Asia have daily turnover of more than $50 million, the type of companies hedge funds with more than $1 billion in assets typically target, including those in markets like China, which restrict trading by foreigners. That compares with more than 190 in Europe and almost 850 in the U.S., according to data compiled by Bloomberg.
Apple Inc. (AAPL:US)’s average daily trading turnover (AAPL:US) in the 12 months to April was about half of the total for all of the stocks listed in Hong Kong and Australia, according to Bloomberg-compiled data.
“As the largest regional hedge funds continue to raise assets and dominate inflows, they have a requirement to deploy capital without hindering the funds’ liquidity,” said Ben Williams, regional head of financing sales at Bank of America Corp.’s Merrill Lynch unit in Hong Kong. “These U.S., European companies can often be a more efficient way to play Asian investment themes.”
Myriad and Tybourne held shares in Google Inc. as of March 31, according to the filings. The U.S. company develops the Android operating system for mobile phone and tablet makers including Samsung Electronics Co.
Apple was the third-largest 13F holding of Myriad at the end of March. The maker of devices such as iPhone and iPad counts Asia as the center of its global supply chain, where it also generated 35 percent of second-quarter sales, according to its annual supplier report and second-quarter disclosure.
Mead Johnson Nutrition Co., also among Myriad’s holdings, is the largest supplier of baby formula in China. The fund also own shares in luxury goods companies such as Ralph Lauren Corp. and Tiffany & Co. The Chinese accounted for 28 percent of global luxury goods sales last year, Bain & Co. estimated.
Tybourne’s hedge fund, which accounts for the bigger part of its assets, returned about 1 percent in the first quarter and recovered in May most of its single-digit April loss, said a person with information on its performance, declining to give specific figures. It gained about 16 percent last year.
Azentus, founded by a former head of Goldman Sachs Group Inc.’s largest proprietary trading desk Morgan Sze, lost more than 5 percent in the first four months this year, said three people with knowledge of its performance.
Myriad, led by Carl Huttenlocher, a former head of Highbridge Capital Management LLC’s Asian operations, is approaching $3 billion in assets, three people told Bloomberg News last week. Its net asset value is little changed this year after last year’s 20 percent return, the people said.
Myriad, which opened its hedge fund in December 2011, targets to allocate as much as 20 percent of assets to securities listed outside Asia over the long term, said a person familiar with the fund on condition of anonymity as the information is private.
Azentus raised about $2 billion within four months of inception in 2011. Tybourne, established by Lone Pine Capital LLC’s former Asia head Eashwar Krishnan in 2012, now oversees more than $2.6 billion in hedge and long-only funds.
About 37 percent of the combined $81 billion assets of Asia-based managers were in the hands of billion-dollar-plus hedge funds at the end of April, 10 percentage points higher than December 2007, according to Eurekahedge Pte.
The average Asia-based hedge fund oversees $147 million, the Singapore-based data provider said. About 49 percent of Asia-based hedge funds lost money in the first four months this year, it said.
Asia-based managers may face investor questions on what their strategy is and how they can claim to know U.S. and European companies better than competitors based in those continents, said Daniel Celeghin, Asia head of Casey Quirk & Associates LLC, a Darien, Connecticut-based adviser to asset managers. Managers in the region can argue that they have deeper insights into how Asia is the key driver of a U.S. or European company, and that could move the stock price, he said.
The expansion to the West by Asia’s bigger hedge funds has coincided with the underperformance of Asian markets as easing by central banks drove recoveries in the U.S. and Europe. The MSCI Asia-Pacific Index (MXAP) returned an annualized 2.6 percent in the three years to April, trailing the Standard & Poor’s 500 Index’s 14 percent and the STOXX Europe 600 Index’s 10 percent gains.
“When global growth seems challenged or if other less volatile economies look attractive, money tends to leave emerging markets en masse and indiscriminately,” said Anthony Lawler, a money manager at the $129 billion Swiss company GAM. “That risk is what some hedge funds have looked to minimize in their books.”
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