FoHFs provide value-added access to investors in volatile Asia-Pacific region

The Asia-Pacific region offers plenty of reasons why multi-manager hedge fund investing via funds of funds can be a better bet than investing with individual managers for all sorts of asset allocators Recent volatility in Asia has reminded investors how difficult it can be to trade local markets in the region, as well as the challenges of selecting individual managers. Many investors looking to simplify how they access hedge funds in the Asia-Pacific region are now closely eyeing multi-managers. Asia in fact provides an excellent case study in the strength of the fund of hedge funds (FoHF) structure for providing investors with niche market access as FoHFs outperformed the broader single-manager hedge fund market in Asia during the course of 2015. Asia Pacific-focused FoHFs were one of the strongest performing multi-manager strategies in 2015. The InvestHedge Asian Pacific Index, which measures the median return of the Asian-focused FoHFs that report to the InvestHedge database, was up 5.2% in 2015 – significantly outperforming Asian single manager hedge funds, as represented by the AsiaHedge Composite Index, which were up by 3.8% for the year. From mid-August 2015 to the end of February 2016 Chinese and Japanese markets were down by between 15% and 30%, whereas the return generated by a FoHF or long/short equity hedge fund portfolio ranged from -2% on the downside to positive 2%. Asian markets are associated with high growth environments, but Allen Sing, portfolio manager at SAIL Advisors, explains that they are not easy to invest in from an outright long perspective. If one looks at the long-term returns for equity market indices going back to 1990, he says, the markets have actually delivered no return. “Long-only investing in Asia has been a roller coaster round-trip of up and down but ending up at the same place,” Sing says. In Sing’s view the challenges are particularly acute when capital markets cease to function in an orderly manner and there were clear examples of this market behaviour in 2015.