Investors may double their allocations to Asia’s hedge funds over the next five years as they look for ways to navigate volatile markets and the region’s managers beat peers in the U.S. and Europe, according to Pacific Alternative Asset Management Co.
Pension funds and sovereign wealth funds have as much as 10 percent of their hedge-fund investments in Asian vehicles, said David Walter, Singapore-based head of research for Asia at the $11 billion fund-of-hedge-funds, known as Paamco. That proportion will probably increase to as much as 20 percent over the next five years, he said.
The Shanghai Composite Index ended a multi-year bull run in June last year, and has since declined almost 50 percent. The plunge has been accompanied by severe global market volatility, deepening investors’ appetite for hedging strategies that can shield them from big market drops. Hedge funds focusing on Asia, which on average beat benchmarks and counterparts investing in the U.S. and Europe, may be beneficiaries of that demand, according to Paamco.
“A lot of long-only investors have been pretty scared of investing in China and underweight that market,” Walter said. “People are now saying ‘I don’t really go long China, let’s have a look at the hedge-fund space’.”