Big banks return to Asia to open new hedge funds

Global banks and asset managers are opening hedge funds in Asia for the first time since the 2008 financial crisis, putting pressure on smaller firms that are already struggling to hold on to investors.

Goldman Sachs, UBS and GLG Partners are gathering investor money for debut hedge funds dedicated to the region. Highbridge Capital Management and Pine River Capital Management are restarting or expanding their Asian offerings.

Such in-house funds can generate new fees and keep talent from striking out on their own. Staying with a big company helps fund managers cover the rising costs of running a business, comply with regulations and meet the more stringent requirements of large institutional investors, said Tim Peach, Singapore-based managing director for Asia at Man Group, which bought GLG in 2010 and is the world's largest publicly traded hedge-fund firm.

"A lot of people who would have gone independent don't have much of a choice now," said Richard Johnston, Asia head of Albourne Partners, a London-based adviser for hedge-fund and private-equity investors.

Smaller firms that got their start after the crisis are finding it harder to survive and grow as funds of funds, a key source of money for small Asian hedge funds before 2008, lose assets, said Hong Kong-based Johnston. Growth is also being hit by rising costs for compliance and catering to institutional investors, which can be a burden for firms with less than US$50 million.

Endowments, pensions and foundations are increasingly making direct hedge-fund investments, cutting funds of funds and the extra layer of fees they charge for pooling money for clients. These institutions, which allocate tens of millions of dollars at a time, can not invest with smaller managers because their holdings are often capped at 10 per cent of a single fund's assets.