- Advertisement -
- Advertisement -

Related

A Finnish investor’s perspective on Asian hedge funds

Latest Report

- Advertisement -

Helsinki (HedgeNordic) – Most investors would agree that hedge funds should be viewed as an extreme degree of active management, an unrestricted way to manage money, not as an asset class of its own. The fund manager’s skill dictates returns, instead of an arbitrary benchmark. Hence an investor does not want exposure to the average return of hedge funds as a group, but to the best decile of the managers. Even assuming that the lion’s share of alpha could be explained and captured by smart beta; i.e. styles and risk premia, it still takes skill to harvest them.

How does one begin to look for the most skilled managers? Is it enough to get access to a database and find out the past winners, optimize a portfolio based on past correlations and hope for the past to repeat itself? Unfortunately persistency of hedge fund returns is not high, and strategy performance alone varies drastically over years. In the humble opinion of the writers, finding the best skill and future performance is a combination of science and art. The minimum level is knowing the research target well in quantitative terms to know what behavior to expect, but that tells you nothing of the managers’ likelihood of succeeding in the future. The differentiating work starts by understanding what makes the managers tick, to be able to evaluate their probability of success and the factors affecting that. So, you want a handful of really great managers who deliver uncorrelated returns, but you cannot find them based on past performance alone, and have to put in some cumbersome footwork to get to know the targets well. There is however one way to improve your chances of finding winners; look in places where you have a disproportionately larger concentration of them. Asia represent one such anomaly. Asian hedge funds have over performed their global peers strongly for 4 straight years.

Why is this? The obvious answer is the inefficiency of the Asian markets offering an environment with plenty of mispricings that can be utilized. In Asia retail investors represent ~80% of the market volume, whereas in the US over 90% of market participants are professional investors. Another explanation would be the lesser dilution by more institutional funds, as in Asia funds have a high turnover reflecting the urgency to succeed, or close shop and do something else. Time really does turn into money in Asia – and if not, the opportunity cost is high.

You can read the full article on pages 18-21 in the HedgeNordic Special Report on Finland

Picture: (c) Iakov-Kalinin—shutterstock.com

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

HedgeNordic Editorial Team
HedgeNordic Editorial Team
This article was written, or published, by the HedgeNordic editorial team.

Latest Articles

From Beef to Bitcoin: August’s Wild CTA Ride

In August 2025, the CTA sub-index of the Nordic Hedge Index edged lower after two positive months, reflecting mixed performance among managers. Strong gains...

Lauri Ehanti to Leave Aalto University Endowment After 14 Years

Lauri Ehanti is leaving Aalto University’s endowment fund after 14 years in various roles, most recently as Head of Investments. His responsibilities will be...

Othania’s All-In-One Fund Celebrates Five Years

Danish fund boutique Othania is celebrating the five-year anniversary of Othania Balanceret Makro, its all-in-one fund blending equity, bond, and alternatives exposure through Exchange...

Atlant Fonder Crosses SEK 10 Billion Milestone

Strong performance and steady inflows have propelled alternative fund boutique Atlant Fonder past the SEK 10 billion milestone in assets under management. Its flagship...

Nordea PM Joins Lancelot Global as Co-Manager

Lancelot Global, a long-only equity fund with flexible net exposure ranging from 60 to 120 percent, has strengthened its portfolio management team with the...

Quirky Questions – or, A Peoples Business

If asset management were only about numbers, we could all go home and let the calculators get on with it. But calculators are dull...

Allocator Interviews

In-Depth: High Yield

Voices

Request for Proposal

- Advertisement -
HedgeNordic
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.