SWFs dominate hedge fund investment in Asia-Pacific

Seeking higher yields in alternative investments, sovereign wealth funds (SWFs) dominate investment in hedge funds by Asia-Pacific institutional investors, accounting for over half of total allocated capital, according to recent data from Preqin.

Asia-Pacific-based sovereign wealth funds comprise 54% of total capital invested in hedge funds, followed by asset managers (10%), private sector pension funds (8%) and insurance companies (8%). China’s sovereign wealth fund, the China Investment Corporation, invests an estimated US$30.8 billion in hedge funds, while Australia’s Future Fund allocates US$14.8 billion, and Singapore’s GIC allocates US$10.5 billion.

Asia-Pacific institutional investors broke the US$200 billion barrier, allocating US$202 billion in hedge funds as of the end of 2016, up from US$180 billion a year earlier.

“The Asia-Pacific hedge fund industry is becoming an increasingly important part of the global landscape. Regulatory changes and increasing institutionalization in the region are exposing a growing number of countries and investor types to opportunities in hedge funds. Investors in turn are allocating increasing amounts of capital to the industry, an increase of over US$20 billion in 2016 alone,” says Amy Bensted, head of hedge fund products at Preqin.

Hong Kong-based institutions account for 42% of all allocation, followed by Singapore (21%), Australia (13%) and China (9%), although Hong Kong is home to far fewer active institutional investors (92 in total) than both Australia (185) and Japan (118). However, Hong Kong is a hot bed of hedge fund activity, being home to 369 hedge fund managers with assets under management (AUM) of US$63.2 billion, compared to 181 in Singapore with US$17.6 billion AUM, and Australia, with 123 managers and US$29.6 billion AUM.

“Although the capital flowing to hedge funds from Asia-Pacific institutions is currently driven by sovereign wealth funds, there are signs that the industry’s appeal is attracting an increasingly diverse range of investors. In particular, it will be interesting to see if investors in emerging Asian economies will become more involved with the asset class. Given the size of the economies of China and India, as these financial markets become more sophisticated it may give a significant boost to the industry in the region,” says Bensted.