Hedge funds run in Asia are cheaper than in US, Europe by 42% - survey
In a survey conducted by Citigroup Inc, data indicated that Asia Pacific-based hedge funds are 42% cheaper to run as opposed to running hedge funds in Europe or in the US. One reason attributed to the survey result was the lower-than-average compensation of fund managers.
The fourth-largest US bank warned, however, that small funds started in the Asia-Pacific region have a hard time to expand its assets and achieve profitability. Moreover, 95 of 167 regional equity long-short hedge funds, or 57% that started trading with less than USD50 million only manage less than the amount started after 5.3 years in existence on average, the survey revealed, citing Singapore-based Eurekahedge Pte's data.
In its regional supplement to its Business Expense Benchmark Survey, Citigroup said, "A critical success factor in the launch of a hedge fund is the size of assets under management at launch. Small fund launches in Asia have demonstrated a statistically reduced chance of accelerated assets under management growth."
The global hedge fund industry worth USD2.5 trillion, Bloomberg said in its report, is getting pressure to reduce its high fees in order to attract investors in the midst of increasing costs to comply with regulations and demand by clients. Eurekahedge data provided in November indicated that the average hedge-fund startup in Asia raised USD8 million in 2013, which was significant less than USD5 million it was able to raise prior to the 2008 global financial crisis, which clearly dented interest in investors.
The news agency also said hedge funds' management fees had already fallen to a low 1.58% for all, except for large companies. Hedge funds typically charge a standard 2% fee. The Citigroup global survey that was released late yesterday also discovered that in order to break even hedge funds on average need to manage a minimum of USD300 million. Citigroup also said hedge funds in Asia could break even with USD135 million minimum of assets under management under a 1.5% management fee.
The survey concluded, "It is likely that, initially, any excess cash may need to be reinvested into the business to ensure an institutional-grade infrastructure is in place. Historically, U.S. investors have held the view that Asia-Pacific managers under-invest in operational and technology infrastructure."
Citigroup's survey sampled 124 hedge fund managers in North America, Europe and Asia with USD465 billion of combined assets under management.