Asian hedge funds are increasingly playing a part in the initial public offerings (IPOs) of Chinese and Indian firms.
Chinese and Indian companies in need of capital quickly are turning to hedge funds, which in turn benefit from inside information about stock floats and potential returns, according to Reuters.
As the Asian financial market becomes increasingly crowded, hedge funds are capitalising on the convenience of the funding they can provide.
The private arrangements behind such transactions make them harder to monitor and hedge funds are starting to act like private equity houses ahead of IPOs.
Meanwhile, investment banks and private equity firms are determined to protect their involvement in IPOs and pursuing business ahead of stock market listings.
“Hedge funds, as a class, have a lot of money looking for a home,” John Moore, joint head of Asia Pacific equity capital markets for ABN AMRO Rothschild. “Pre-IPO financing is one way for them to go.”
The petroleum operation of Indian group Reliance Industries sold $605 million worth of shares ahead of its IPO to foreign and domestic funds and hedge funds are increasingly investing in such longer-term assets, which can prove highly lucrative.
Research group Eurekahedge reports that regional assets under management in Asia rose by over 30% to around $100 billion last year.