Sovereign fund eyes Asian hedge move

China's $814 billion sovereign wealth fund may increase investments in hedge funds in Asia, betting they can beat rivals trading in developed markets.

Hedge fund managers face fewer competitors in Asia, where markets are less efficient and mature than in the United States and Europe, said Roslyn Zhang, managing director of fixed income and absolute-return investments at China Investment Corp. Money will probably be allocated to the funds in the next six to 12 months, she said.

"Over the last few years we've seen the quality of talent improve a lot," Zhang said in a telephone interview. "The top managers in Asia probably have a better chance of producing more alpha here in Asia than in more developed markets," she said, referring to profits generated in excess of a benchmark index.

Asian hedge funds outperformed global funds in each calendar year from 2012, returning an annualized 9.5 percent against 5.7 percent in the four years through 2015, according to Eurekahedge, while trailing them so far in 2016. They accounted for just 3.8 percent of the global industry's $2.9 trillion of assets at the end of June, according to Chicago-based Hedge Fund Research Inc.

The global hedge-fund industry has come under fire this year for lackluster returns, with investors pulling the most money since the aftermath of the financial crisis. Zhang, who at a May conference criticized hedge funds for everything from high fees to crowding into the same trades, said CIC has no plans to follow some US and European pension plans in pulling investments.

CIC, which is based in Beijing, had a 3 percent loss on its overseas investments last year, the first decline in four years, as commodity prices sank, while stock and bond returns were damped by negative interest rates and the strong US dollar. It didn't disclose the performance of its absolute return investments, which includes hedge funds and accounted for about 13 percent of global holdings at the end of December, according to its latest annual report.

Bloomberg