Asia’s Billion Dollar Club, a ranking of the region’s billion-dollar plus hedge fund managers, stalled in its third iteration as negative returns across the industry overall slowed down fundraising in the second half of 2018.

Tracking the full year returns of all the funds listed on the AsiaHedge database the median return came back at a disappointing -6.6%.

It is little surprise to then see that the more than $200bn managed by Asia’s Billion Dollar Club as of June 2018 slipped to $190bn by the end of the year. By way of comparison overall assets for Asia’s hedge fund industry fell from $345bn to $328bn over the same six-month period.

Yet, some of the losses tracked on AsiaHedge’s Billion Dollar Club can be credited to better quality research and data collection. For instance, Hillhouse Capital’s loss of $5bn. Still on the top spot by some distance the secretive Chinese alternatives giant’s new assets under management (AuM) figure is attributable to a better understanding of its underlying portfolio breakdown.

The firm, founded by Lei Zhang in 2005, has amassed a total AuM of more than $50bn in less than 15 years invested across consumer, TMT, industrials, real estate, and healthcare across all equity stages. The breakdown of its public and private investment portfolios remains secret. Yet, while last year $35bn was estimated to be the value of its public investments, sources close to Hillhouse told AsiaHedge that the figure is actually close to $30bn.

Other big-name fund managers did suffer AuM losses in H2 2018. Nezu Asia, a firm whose assets peaked at around $2bn in 2016, has slipped off the Asia Billion Dollar club with assets at the firm having dropped to $735m, according to a filing with the US Securities and Exchange Commission (SEC).

The firm shuttered its Nezu Japan Fund in August and terminated SEC registration for its Singapore entity around the same time. The asset decline comes alongside a string of departures at the firm which saw a trio of staff depart shortly after the exits of its head of trading and a senior portfolio manager around the turn of the year.

Hong Kong-headquartered Value Partners Group, which ranks third on the ranking with just shy of $10bn in hedge fund assets, was also notable as it suffered a decline in AuM as it’s China-focused strategies struggled.

The firm only collected HK$56m in gross performance fees against HK$2.6bn the previous year as Au King Lun, the group’s chief executive officer, said waves of self-offs in financial markets in Asia on fears over the US-China trade war, rising US interest rates and a slowdown in global economic growth, among other, ravaged investor sentiment.

Yet, the business was still able to deliver a profit despite a 98% reduction in performance fees, the Value Partners flagship ‘Value Partners Classic Fund’ was approved for China distribution, China AuM was up 28% to $1.1bn, and the firm added Malaysia and Boston to London and Shanghai as its growing list of overseas offices.

“There was so much volatility last year there were so many more questions and concerns about China that it slowed a lot of people down,” explains Michael Mills, managing director of alternative products at Value Partners.

He added that in light of improved conditions in 2019 the mood among investors is changing. “Fundraising did start picking up this year. We are seeing lots of different types of interest, from fixed-income to equity long/short products,” he said. “I wouldn’t say the floodgates have opened but there is definitely more interest coming back to China in 2019.”

Pausing through uncertainty

China’s instability was not the only headwind to Asia’s Billion Dollar Club increasing its stranglehold on the region’s hedge fund industry’s AuM.

According to Jennifer Wong, managing director of investor relations at Pinpoint Group, pointed to global uncertainty for the slowdown. PinPoint manages around $3.6bn across a China equity long/short strategy and a multi-strategy fund.

“European investors I spoke to are underweight Asian equities and looking to increase their allocations in the region, in particular China. Uncertainty on US-China trade wars, Brexit and so on, means they might be taking a more proactive stance on Asia,” said Wong.

Wong added that what goes on in an investors home markets can slow down making commitments. But, that the uncertainty also means global investors are looking East for opportunities which over time will be beneficial for Asia.

“There is a recognition to increase their China or Asia allocation, how quickly they get up to weight is case by case with investors, but they will be putting money into Asia with guys who can generate alpha,” agrees Value Partners’ Mills.

Performance so far in 2019 has improved dramatically compared to 2018 and investors are becoming less skittish on the region.

But competition for these assets will not just be rival hedge fund managers on the Asia Billion Dollar Club though, says Mills.

“Competition is less about long-only and hedge funds. It is really between hedge funds and closed ended private equity type vehicles,” he says. “A lot of money has flowed into that and that’s the competition for hedge funds which used to be purely for hedge funds.”

So, while still dominating Asia’s hedge fund landscape accounting for more than half of the region’s total hedge fund assets, the Billion Dollar Club faces both opportunities, but also headwinds, to growing larger.

Slow progress on AsiaHedge.