財經觀察 2245: Hedge Funds Topping $2 Trillion

Deutsche Bank Sees Hedge Funds Topping $2 Trillion (Update1)
2009-11-10 06:56:42.686 GMT

    (Adds Galleon in fourth paragraph, Galleon, K1 arrests,
regulation from third-to-last paragraph.)

By Bei Hu
    Nov. 10 (Bloomberg) -- Hedge fund assets may top the
previous $2 trillion high by the end of next year as double-digit
average returns lure investors, said Barry Bausano, Deutsche Bank
AG’s global co-head of prime finance.
    Hedge fund assets parked with Deutsche Bank have risen
recently and global investors plan to allocate new capital next
year, New York-based Bausano said during a visit to Hong Kong on
Nov. 6. His division provides services and products ranging from
securities lending to financing and derivatives to the industry.
   “We fully expect to see material inflows into 2010 and
beyond,” said Bausano. “The expected growth is reflective of
continuing institutional demand for increased risk-adjusted
returns in the face of low bond yields and disappointing passive
equity performance.”
    Global hedge funds have rebounded faster than projections by
investors in a Deutsche Bank survey in February, even as
regulators study ways to increase scrutiny of the industry and
managers including Galleon Group’s Raj Rajaratnam face insider
trading charges. Hedge fund assets recovered to $1.53 trillion by
September, from this year’s trough of $1.33 trillion in March,
according to data from Chicago based Hedge Fund Research Inc.
    Hedge fund assets shrank as much as 31 percent from a June
2008 peak of $1.93 trillion after last year’s record annual
investment losses and investor withdrawals, HFR said.
   HFRI Fund-Weighted Composite Index gained nearly 17 percent
in the first 10 months, HFR said in a statement Nov. 7. More than
two-thirds of hedge funds had inflows in the third quarter, HFR
said last month.

                         Market Share

    More than 60 percent of 1,000 investors surveyed by Deutsche
Bank in February suggested hedge fund assets may fall 11 percent
this year to $1.33 trillion by December.
    Banks’ prime finance revenue fell as the industry shrank.
    “We estimate the aggregate industry-wide revenue was down
between 30 percent and 40 percent 2009 versus 2008,” said
Bausano. “We expect to be up slightly this year, reflecting
Deutsche Bank’s gain in market share but also the quality of our
client base.”
    Deutsche Bank and Credit Suisse Group AG were among banks
likely to take market share from the dominant prime brokerage duo
of Goldman Sachs Group Inc. and Morgan Stanley as hedge funds
spooked by the collapse of Lehman Brothers Holdings Inc. last
year moved business elsewhere, Sanford C. Bernstein & Co. analyst
Brad Hintz said in a March report.

                          Asia Growth

    The Asia-Pacific region is a priority for Deutsche Bank’s
prime finance division, added Bausano, who was attending the
company’s annual Asia managers forum in Hong Kong where 45
managers met with more than 200 hedge fund investors.
    “The high level of economic growth is going to be mirrored
in assets under management across all asset classes and hedge
funds in particular,” Bausano said. “The diversity of the 12 or
so markets is really an investor’s paradise.”
    Growth in Asia will probably accelerate to 5.8 percent next
year from 2.8 percent this year, the International Monetary Fund
said last month. That compares with an IMF forecast expansion of
just 1.25 percent in 2010 in the Group of Seven economies.
    Deutsche Bank has hired 15 prime finance staff since the
fourth quarter of 2008, said Harvey Twomey, Hong Kong-based head
of Deutsche Bank’s prime finance institutional client group in
Asia-Pacific.
    The bank announced in September the transfer of David Murphy
from its New York office and the hiring of Merrill Lynch & Co.’s
Nathan Davison to co-head the division in Asia.

                           Startups

    One defining characteristic of the Asian hedge fund industry
this year has been the scale and quality of startups, Twomey said.
Startup costs in Asia have always been lower than London or New
York, he added.
    “There’s also been a backlog because it was very hard to
start a fund in 2008 during the eye of the storm,” Bausano added.
“As the market emerged from 2008 into 2009, if you were a
confident, successful investment manager in the key lieutenant
position in a firm, the opportunity cost of leaving was probably
never lower.”
    Deutsche Bank has been tracking 45 to 50 Asian hedge fund
startups that have or will have started investing from January
this year to March 2010, Twomey added. About 25 of them have
chosen Deutsche Bank as a prime broker from day one.

                           Regulation

    Hari Kumar, a founding partner of TPG-Axon Capital
Management LP; ex-Goldman trader Shafiq Karmali; former Citadel
Investment Group LLC executive Nick Taylor; and Stark Investments
principals Teall Edds and Stuart Wilson were among those who
started their own companies in Asia.
    Rajaratnam, the founder of hedge fund firm Galleon, was
taken into U.S. custody on insider-trading charges last month,
while Helmut Kiener, who founded the K1 Group hedge-fund firm,
was arrested in Germany last week.
    As part of a regulatory overhaul in the wake of the global
financial crisis, U.S. President Barack wants to bring hedge
funds and private-equity firms under federal supervision for the
first time.
    The European Union proposes to set up industrywide debt
limits for hedge funds and private-equity firms, as well as
requiring managers to get regulatory approvals and to report
strategies and exposures so authorities can monitor risks.