Gwyn Roberts

09/11/2011 Author: Gwyn Roberts

Counterparty fears drive multi-prime rise in Asia

The relief was palpable. “We’ve just finished phoning our last manager,” said the COO of an Asia-based fund of hedge funds, “and none has exposure to MF Global.” When counterparty risk rears its head it creates a wave like no other and in Hong Kong last week managers were expressing concern that the current European debt disease could impact the region’s funds industry.

Beyond the current problems with MF Global, this has resulted in reshuffled accounts at prime brokers and a renewed search for more multi-prime relationships. One Hong Kong-based PB told HFMWeek that despite relatively meagre launches in the region this year, it has still won new business as more funds look to go multi-prime.

This potential – albeit a diluted one, fed by fragmented balances – explains why JP Morgan and HSBC have both upped their prime services in the region; a contrast to the current trend at US and European firms of recruitment freezes and some job losses.   

In fact, despite the same performance difficulties as the West – the HFRX Asia Composite Hedge Fund Index is down 7.5% YTD – service providers are still looking eastwards. The imminent wave of US regulation has seen advisory firms like Kinetic and ACA set up in Hong Kong, as they look to help local managers with problems created in the West.

This could prove a lucrative stream of new business. However, newcomers must remember that managers here are critical of those that simply offer a watered-down version of London or New York. To succeed firms must address the specific needs of Asia-based managers, and not just deliver a rehash of western services.

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