Hedge funds that have set up shop in places like Singapore and Hong Kong generated 30% of all reported commissions earned by brokers over the past 12 months on trades of Asian stocks, according to new research from Greenwich Associates, which looks at the growing influence of hedge funds in the Asian region.
Large hedge funds from the United States and Europe are looking to diversify both in terms of strategy and geography, ” says John Feng, a Greenwich Associates. “As a result of the entry of these actively trading investors and the growth of regional hedge funds focused on Asia, the amount of equity commissions generated on trades of Asian shares has increased by 20% in each of the past two years.”
The report examines hedge funds’ growing influence in the Asian region, expected rates of return on equities from countries throughout Asia, the use of portfolio trading, and compensation levels of Asian equity professionals.
In terms of Asian equity assets under management, the typical hedge fund in the Greenwich Associates study maintains a portfolio that is only one-third the size of the Asian stock holdings of the average institutional investor in the region. When it comes to the amount of commissions paid to brokers on Asian share trades however, hedge funds and other types of institutions are essentially equal.
Due to their high levels of portfolio turnover, the global and regional hedge funds that are arriving in Singapore, Hong Kong and other Asian trading centres in ever increasing numbers are generating a disproportionate amount – about 30% – of the total commissions that brokers are earning trading Asian stocks. “While a robust new issues market has provided a boost to commission levels, the largest part of this growth can be attributed to the trading volumes generated by these hedge funds, ” says Greenwich Associates consultant Jay Bennett.