Asia attracts global hedge funds

US-based Pequot Capital to launch Asian distressed debt fund.

"The action is here in Asia, and we're going to get involved," says Arthur Samberg, founder of multi-billion dollar US-based hedge fund Pequot Capital. Speaking at the inaugural GAIMAsia conference in Hong Kong, Samberg announced that Pequot will shortly be launching an Asian distressed debt fund, its first Asian dedicated product.

"The distressed product is the best approach for us to play Asia at the moment. This is the area where inefficiencies are most manifest," he comments.

Although this will be Pequot's first Asian dedicated product, the firm is no stranger to Asia. Its flagship diversified equities fund has about one third of its investments in the region. "After the firm split in 2001 we reassessed our business and identified two key themes," he adds. "Firstly we would have to invest globally, and secondly we would have to be mutli-sector and operate across the capital structure."

Speaking on the subject of "stress, satisfaction and excitement", Samberg recounted the ups and downs during his career at Pequot, which he launched in 1986 with $3 million. Samberg gained his popularity as the pioneer of the sector-based approach to hedge fund investing in the 1990s.

He successfully identified the key themes during the 90s through his healthcare, tech and small cap funds. Hitting its first $100 million in 1992, Pequot saw explosive asset growth thereafter climaxing at $16 billion in 2000 prior to Samberg's split with his partner in September 2001, after which Pequot's assets were significantly reduced. "You can have a good system and structure your firm innovatively but the kind of wealth creation we experienced stresses everything," Samberg said.

Paul Calello, CSFB Chairman and CEO, Asia Pacific, echoed Samberg's enthusiasm for hedge fund activity in the region, noting that an increasing number of household US and European hedge fund names are setting up significant operations on the ground in Asia.

"Asia dedicated funds currently make up 5% of global hedge fund assets, and stand at $52 billion. This number will double or triple in the next three years," he predicts. "Inefficiencies within Asia's markets and the liberalization of the financial markets are creating opportunities for hedge funds in the region."

Calello says CSFB is proactively working to position itself within these opportunities, and has applied for a stock exchange license in Malaysia among other initiatives.

"The fact that we are principal sponsor of this GAIM event in Asia is a testament to the importance of hedge funds to our business and certainly to our bottom line," Calello notes. "About half the volume of the New York Stock Exchange is attributed to hedge funds, so they are important to the financial system as well as to us."

CSFB's equity strategist for Asia, Stewart Paterson, put some perspective on the Asian growth story. "Asia's place in the global economy is changing from periphery to core and the prospects for growth are still strongest in this region," he says.

However, he predicts Asia will not continue to grow at the same rate it has enjoyed in recent years. "Export-led growth driven by the insatiable appetite of the US consumer is not a sustainable model. Asia either needs to find another external consumer or rely on endogenous growth."

Paterson believes that European and Japanese consumers will be unable to fill the gap. "Asia will have to reduce precautionary savings to stimulate domestic consumption, and this will require more efficient institutionalized and liability-based savings."