Citadel LLC and CQS (UK) LLP are among global hedge funds providing refuge to managers in Asia as smaller firms struggle to raise money.
Agus Tandiono returned to Citadel, the $13 billion firm run by Kenneth Griffin, in January following the closure of a fund he managed, said a person with knowledge of the move. Sanjiv Bhatia joined CQS, which oversees $11.6 billion, after winding down his Hong Kong-based fund in December.
Asia-focused managers have struggled to gather capital as market volatility increased and clients became more selective following the global financial crisis and the Bernard Madoff scandal. Investors directed almost 80% of new capital to hedge funds overseeing more than $5 billion in the 15 months to March, according to Hedge Fund Research Inc.
“Unless you get to $100 million pretty early on, it’s very hard now to survive,” said Richard Johnston, Hong Kong-based Asia head of Albourne Partners Ltd., which advises investors on hedge funds and other alternative investments. “You’re better off working at a big multistrategy fund or platform manager.”
Of 308 Asian hedge funds started since 2009, 74% have failed to boost assets “significantly,” according to Eurekahedge Pte. Of those funds, 51 have been liquidated, according to the Singapore-based research firm, which tracks 1,314 hedge funds that focus on the region or are based in Asia and have a combined $128 billion in assets.
Competition for capital intensified in Asia as more hedge funds were set up to take advantage of the world’s fastest-growing economies. Potential clients have held back after funds suffered two of their worst years in the past four years amid Europe’s sovereign debt crisis, concerns that the U.S. economic recovery is faltering and a slowdown in China.
“There is no doubt that the break-even level for funds has risen and startups need to manage their cash flows carefully whilst proving to potential investors that they have enough of an institutional infrastructure,” said Mark Wightman, global head of alternatives strategy at SunGard, a provider of trading systems for financial firms, in Singapore.
Direct allocations from institutions such as pensions and endowments now account for a larger share of the inflows into hedge funds, and they tend to prefer bigger and more established managers, said Max Gottschalk, co-founder of Gottex Fund Management Holdings Ltd. in Hong Kong, which allocates $7.6 billion to hedge funds.
Managers are further pressed to build and maintain large investment and operational teams, and systems to meet the more stringent demands of institutional investors, he said.
An estimated 775 hedge funds globally closed down last year, 4% more than in 2010, as institutional investors directed most of the new capital toward the largest managers, according to Chicago-based HFR data.
Mr. Tandiono started the first equity fund for Income Partners Asset Management Ltd. in July 2009, as the manager of debt and macro funds attempted to widen its offerings. The $25 million fund closed mid-2011 because “it was very difficult to raise money,” said Francis Tjia, a managing partner at the Hong Kong-based company, which has $1 billion in assets.
Mr. Tandiono first joined Citadel in early 2006 as an analyst and became the head of Asia equities later that year. He left in 2008 when the Chicago-based hedge fund reorganized in the region. Devon Spurgeon, a spokeswoman at Citadel, declined to comment. The person familiar with Tandiono’s hiring asked not to be identified because the information is private.
Mr. Bhatia, a former trader and risk manager at Goldman Sachs Group Inc. in London and Hong Kong, left Minneapolis-based Deephaven Capital Management LLC in July 2008 to start Isometric Investment Advisors Ltd. Mr. Bhatia said he closed the hedge fund in December after FRM Capital Advisors Ltd. in London, which accounted for about 80% of his fund’s assets, decided to invest its money elsewhere.
Investors added $18.3 billion of new capital to managers with at least $5 billion of assets in the first quarter, data from HFR show. Smaller managers with assets below that threshold suffered a combined outflow of almost $2 billion.
About 62% of the Asia hedge funds tracked by Eurekahedge oversee $50 million or less.