Hedge funds set to steal share from mutual funds in Asia, says Barclays’ Yang

Hedge funds – a once-shunned asset class in Asia – are likely to take market share away from traditional mutual funds, according to Angus Yang, director in the equity finance group at Barclays Capital in Tokyo.

"The performance by hedge funds as an asset class has been phenomenal in the past three to five years," said Yang. "Investors are now willing to look at them as a more legitimate investment versus a few years ago."

He added that more established US and European hedge funds are setting up offices in the region, notably in Hong Kong, Singapore and Japan. The number of local hedge funds has also grown, although the average level of start-up investment is between $5 million to $30 million, with only a handful over $100 million, said Yang.

But Asia-based hedge funds and US- and European-based hedge funds with Asian assets under management only account for an estimated $40 billion of the $600-billion-dollar hedge fund industry. "When you compare genuine Asia-based hedge funds to their peers in the US and Europe, they are actually in their infancy," said Yang.

But Yang believes this situation will change. "I won't even be surprised if, in five years’ time, hedge fund products are structured and marketed in the same way as traditional mutual funds.” Yang believes this growth could lead to a fall in hedge fund management and performance fees.

Barclays Capital plans to continue focusing its prime brokerage services on US- and European-based hedge fund clients that run global strategies, although it is in talks with a number of Asia-based hedge funds on a selective basis.

"We are looking at Asia-based hedge funds. [But] we plan to stick to clients that we know, or hedge funds that have been started up by a former customer - maybe a head trader from a US hedge fund who has left to start a hedge fund in Asia," said Yang, declining to comment further.

The bank is also planning to hire two traders to its prime brokerage trading desk in Japan by the third quarter of this year.