Is Singapore the best place for Galleon’s funds?

New York-based hedge fund manager Galleon Group is setting up a Singapore operation to manage its $1.1 billion Asian long/short equity fund and to venture into new businesses, industry sources said.

The hedge fund manager, which has invested a total of $7.5 billion in technology, healthcare, financials, consumer and private equity, is in the process of hiring Asian experts for its regional operation, the sources told Reuters.

The company, set up by Sri Lankan-born Raj Rajaratnam in 1997, has been investing in Asia for the last 10 years, but in 2006 it launched a Asian long/short fund -- which can profit in both falling and rising markets.

The fund will be managed by the Singapore team, one source with direct knowledge of the plans said.

Galleon declined to comment.

The move underscores Singapore's growing importance as an Asian hedge fund centre.

“It is easier to set up an office in Singapore for hedge funds as well as for service providers,” said Rajeev Baddepudi, an analyst at consultancy Eurekahedge. “It has the advantage of better access to the key regional markets such as India.”Last year Swiss-based RMF, which is part of the Man Group and manages fund of hedge funds, moved its Asia headquarters to Singapore from Tokyo, citing Singapore's attractive regulatory climate, international environment, and better lifestyle for its employees.

Another draw is Singapore's two big state-backed investment firms: Temasek and Government of Singapore Investment Corporation (GIC), which manages Singapore's reserves.
Temasek and the GIC have assets of $120 billion and over $100 billion respectively, and many of the fund managers who flock to Singapore compete for the mandates to invest the portion that is placed with independent investment firms.

But this year's market turmoil has undermined returns at Asian-focused hedge funds, which manage $156 billion according to Eurekahedge.

After producing five straight years of double-digit percentage gains, the Eurekahedge Asian Hedge Fund Index is down 7.9 percent this year up to March. This compares with declines of 1.7 percent and 3.2 percent respectively in its North American and European indexes.

With all these challenges, will Galleon succeed in managing its funds and venturing into new businesses in Singapore?

Will activist fund succeed in Japan?

Privee Investment Asia will soon launch a $100 million long/short equity fund, profiting in both falling and rising markets, that will initially invest in Japanese small cap firms, the Japanese fund group's head said.

Privee Investment Asia is part of Privee Investment Holdings, a Tokyo-based activist investor, which takes big stakes in underperforming and poorly run Japanese firms with a view to turning them round within two to three years.

"We're going to launch a long/short fund," Masano Yoshitake, Privee Investment Asia's Managing Director and Chief Investment Officer, said at the Reuters Hedge Funds and Private Equity Summit in Singapore.

"We're looking to launch this year. All the documentation has been completed. We're just looking for the right timing."

He said the fund was aimed at institutional investors, including funds of funds, endowments and family offices.

Hedge funds pursuing a long/short strategy are supposed to profit in both rising and falling markets by combining a group of long stock positions with short positions of stocks or stock index futures.

Last October, Privee launched its Privee Japan Fund with 3 billion yen ($29.3 million) in seed money from its parent company to invest in Japanese companies.

"Our strategy is to build up significant stakes in those companies, 30, 35, sometimes 50 percent," Yoshitake said. "We are still in the process of accumulating the positions."

Yoshitake, who previously was a portfolio manager at Allianz Global Investors, said that while Privee was seeking seats on companies' boards it was not looking for aggressive management reshuffles.

Its target firms usually trade at a price/book ratio of 0.2 to 0.3 times and its investment horizon is two to three years.

"The investment return on individual stocks could be 100 percent or more. Our target return on the portfolio would be 20 to 25 percent per annum," Yoshitake said.

Seiji Himuro, Privee Fund Group's co-chief operating officer, said the fund had opened an office in Singapore to profit from easy access to investors and favorable regulation.

Himuro is a co-founder of Privee Investment Holdings and previously ran the Tokyo proprietary trading desk of Salomon Brothers, where he also worked with John Meriwether, co-founder of the Long-Term Capital Management fund which imploded in 1998.

Will the institutional investors bite?

Will 7-10% returns materialize?

ING Funds expects the ING Annual Alpha Access Capital Protected Fund - a three-year close-ended capital protected fund - to generate annual returns of 7% to 10%.

Its chief executive officer Steve Ong said the fund ensured investors with 100% capital protection at the date of maturity by investing in ringgit-denominated financial instruments.

These instruments issued by local financial institutions would return 100% of the invested capital back to investors at the end of the three years, he said at the launch.

Under its investing strategy, the fund would invest up to 10% of its net asset value in the ING Outperformance Alpha Option, a three-year ringgit hedged call option, consisting of Global Emerging markets ex-Asia and the Asia Emerging markets indices versus the US S&P 500 index.

"The two global emerging markets basket of indices offers investors diversification as they are not correlated with one another,” he said.

The Global Emerging Markets ex-Asia includes Russian Depository Index, Central and European Europe Index, iShares MSCI Brazil Index Fund and iShares MSCI Mexico Index Fund.

The Asia Emerging Market consists of Hang Seng China Enterprises Index, Kospi 200 Index, MSCI Taiwan Index and ASX 200 Index.

Ong said the fund aimed to provide investors with an annual payout regardless of bull or bear market conditions with the potential outperformance of the two global emerging markets basket of indices versus the US S&P 500.

Based on historical data, these markets have been registering higher returns than the US S&P 500.

"We believe there is still room for more growth in the near future for these markets compared with the more mature US market," he added.

The approved fund size is 500 million units with a minimum initial investment of RM5,000.

ING Funds has targeted to increase the funds under its management to RM3bil from about RM2bil at the end of 2007 with the launch of another three products this year.

Is this too good to be true?

The end for underperforming funds?

Polar Capital has closed two hedge funds and a long-only vehicle after a prolonged period of underperformance.

These are Polar’s Asia ex-Japan long-only portfolio and its Asian technology and absolute return hedge funds, the latter dubbed Lotus.

The latter fell from $86.7m in June 2007 to $56.8m in December and posted a total return of -12.18% for 2007.

Its Technology Absolute Return portfolio fell from $79.1m to $36.1m over the same period and lost 27.58%.

Polar Capital said the fall in total assets under management from $3.6bn to $3.2bn over the year reflects a loss of 11.1%.

It blamed the fund closures on poor performance as a result of challenging market conditions.

Mark Kary, Polar's chief executive, said: “We have continued to feel the impact of investors disenchantment with the Japanese equity market, which has lead to continuing redemptions in both our long-only and our underperforming Japanese hedge fund.

“On the hedge fund side, we have taken the opportunity to rationalise our range through the closure of the modest sized Asian technology and Asian absolute return funds both of which had delivered unsatisfactory returns.”

The firm was co-founded by Brian Ashford-Russell and Tim Woolley in 2001, as a technology specialist.

In this period of financial instability, will more hedge funds be forced to close too?