Asia: Brokers gearing up for money managers

November 30, 2009 06:00 PM

Andy Abraham says he’s been following Asian markets on paper for years, but only now is he looking to trade them in a serious way.

“The opportunities are there,” the New York-based commodity trading advisor (CTA) said at this year’s Futures Industry Association Expo in Chicago, right after meeting with representatives from the once-provincial Tokyo
Commodity Exchange.

“I’d love to trade these markets if they can lower the entry barriers,” he said. “And from what I can see, that’s exactly what’s happening.” Indeed, as we have reported over the past five years, regulatory regimes across Asia have been relaxing restrictions on access to their markets for foreign institutions, including CTAs, and many exchanges have responded by upgrading their technology to handle electronic orders delivered via the FIX Protocol. All Asian futures exchanges, including those with outdated technology, are tied into the global trading apparatus with long-standing, multi-regional clearing firms like Newedge, JP Morgan and MF Global and long-standing giants like HSBC, which are moving into the hedge fund/CTA arena with a new offer.

Companies like these and Jaypee Capital Services, one of the leading brokerage and proprietary trading firms in India, anticipate a surge in new managed money with an Asia focus over the coming three years and are scrambling for a piece of it. And no wonder, as hedge funds with an Asia focus have been one of this past year’s brightest spots in terms of performance and are continuing to be so, according to Chicago-based tracking group Hedge Fund Research (HFR).

Their benchmark Asian Index, the HFRI Emerging Markets: Asia ex-Japan Index, returned nearly 9% in the third quarter of this year, while assets in Asian hedge funds climbed to $73.7 billion, including $800 million of new capital, the first net inflow of capital since the economic crisis hit last year (see “Back on the move” ).

“While both emerging and developed Asia experienced performance increases and capital inflows, the performance based asset increases were concentrated in emerging Asia,” the group said in a statement. “The percentage of Asian-focused firms headquartered in China is 23.2%, reflecting an increase of nearly 5% since Q3 ’08 (see “Where is the home-grown talent,").”


Participants in the region, however, say that many of these Asia-based and Asia-focused entities are imports from abroad, rather than home-grown traders.

“The opportunities in Asia are amazing, but we are really just now beginning to see local Asian traders coming into the arena,” says Hong Kong native Chris Tam, a principal with Future Gate Investment Fund (see Trader Profile, July 2009). “Especially when you get into managed futures, as opposed to equities and options, the new business is really coming from abroad.”

Tom Weiye Tang agrees. He is a partner in Splendor Capital Management, one of the few CTAs based on Mainland China (see Trader Profile).

“There is a lot of interest in futures, but there aren’t that many from China,” he says. “I’d say most of the futures business that isn’t hedging is originating abroad.”

Countries like Korea and Japan continue to enjoy strong domestic trading, but most of the new professional volume is coming into the region from abroad, even in India, which leads the world in single-stock futures trading.

“We’re seeing more and more money managers coming up with an India focus, but they are not necessarily coming from India, or even located there,” says Saurav “Sunny” Arora, who in 2003 opened the Chicago office of Jaypee International, the firm’s operation in the Americas. “People can access Indian equity and equity derivatives markets if they are a registered participant, and many are taking advantage of that.”

But what about numbers showing a surge in Asia-based futures funds? Emmanuel Faure believes that reflects the growth of fund of funds based there rather than a surge in young
trading talent.

“On the managed futures side, everybody talks about this growth, and every securities or futures company has a managed futures department especially in Taiwan, but it’s usually a fund of funds investing into well-know CTAs,” says Faure, who is head of business development and sales for HSBC Futures Asia in Hong Kong and is heading up efforts to create a trade-execution infrastructure for hedge funds/CTAs there.

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