Investing In Hedge Funds? Asian Investors Prefer Saving

by Carla Johnson, InvestorsOffshore.com

25 May 2001

A major hedge funds conference in Hong Kong this week highlighted the unpopularity of hedge funds among Asian investors compared to their US and European counterparts.

During the two-day conference, entitled 'Hedge.funds World Asia 2001,' Thomas Schneeweis, director of the Centre for International Securities and Derivatives Markets at the University of Massachusetts, said the recent stock market volatility had led to significant rise in hedge fund investment for many but noted that this clearly was not the case for Asian investors.

Garry Crowder, managing director at Zurich Capital Markets in New York, claimed that many investors were not aware of such a strategy, saying: 'You can't get people to make a decision to participate in something unless they know what it is and unless they know where mistakes can happen.'

According to Rory Gallaher, financial services chief at legal firm Deacons in Hong Kong, regulators in the region were as tentative about hedge funds as their clients. 'There is antipathy towards short-selling in the region. There's a feeling that this is speculative and unhealthy for the markets,' he said.

Mutual funds also attract a similar attitude from Asian investors. Reports from the Australian Financial Review (AFR) have estimated that only 8 per cent of Hong Kong's population invest in mutual funds and for Japan and Singapore the figures are 10 per cent and 14 per cent respectively. The reason simply being, says the AFR, is that Asians just prefer to leave their money in the bank because of high savings rates which can range from 27 of GDP in Taiwan to 52 per cent in Singapore.

In addition mutual fund fees are considered too high by most investors in Asia with around 5 per cent initial sales charge and 1.5 per cent in annual management fees compared to the US where almost a third of funds are free from sales fees and management fees are usually no more than 1.3 per cent per year.

However, sales fees are beginning to lower with the example of Taiwan where locally registered fund holders currently pay around 3 per cent. The AFR is optimistic that things will change for the better with the general belief that 'mindsets' will change slowly but surely.

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