A rough year for Asian hedge funds in 2011 exposed the long-only bias of many managers' portfolios, leaving the industry fighting a tough battle to retain clients as assets shrink and fund closures accelerate.
The setback puts at risk the industry's slow recovery since 2008 and highlights the need for the survivors to reinvent themselves in Asia, where lower market turnover makes some of the trading strategies used by hedge funds in the United States and Europe harder to replicate.
Net outflows in each of the last four months of 2011 have pushed the industry $52 billion behind its peak assets of $176 billion hit in December 2007, data from industry tracker Eurekahedge showed, spelling troubles for start-ups, prime brokers and other service providers who had pinned hopes on a potential expansion. Well-known funds such as $300 million Thaddeus Capital and more-than-a-decade-old Boyer Allan Investment Management, which once managed $1.8 billion, have shuttered as the number of closures surged past launches for the first time since 2008.
The total pool of stocks available to investors to borrow in Asia stands at about $664.8 billion, which is about a fifth of what is available across Europe and less than a 10th of that in the Unite States, according to Data Explorers.