HONG KONG – Hedge fund founders in Asia are jumping ship to global giants ranging from Citadel to Millennium Management, as the struggles of capital raising and pressure to make higher returns curb the attractiveness for some managers’ solo endeavours.
Torq Capital Management chief investment officer Avinash Abraham is closing his firm to rejoin Citadel as a portfolio manager, while macro manager Ayan Sen returned to Millennium in 2024, marking the end of his more than five-year stint running his own Navik Capital in Singapore.
Smaller hedge fund firms are facing a difficult capital-raising environment and an increasingly costly war for talent. While there have always been isolated cases, and it is too early to know how many more will follow, high interest rates have driven up expected returns and are forecast to tilt more Asia-based hedge fund entrepreneurs in favour of embracing the bigger global so-called pod firms, or platforms.
“It’s just hard to get investors on board, harder now than it has been for a long, long time, because so many investors just pile the money into platforms,” said Mr John Mullally, Hong Kong managing director of recruiting firm Robert Walters.
While some industry followers were surprised when Mr Abraham, the former head of Balyasny Asset Management Asia, announced that he was shutting up shop in his December newsletter, others before him have made similar moves. Mr Panich Prompat, now a portfolio manager at Dymon Asia Capital, joined Millennium in 2021 after running his firm for three years. Citadel in 2020 hired back Mr Nick Taylor, who set up his own event-driven hedge fund in Hong Kong after an earlier stint with Citadel.
In the three quarters ended June 2023, hedge fund closures in the region outstripped new starts by at least two to one, according to Preqin estimates. There were still more funds shutting than opening in the third quarter of 2023, even as the gap narrowed.
Mr Abraham began his investment career as an analyst at Och-Ziff Capital Management and honed his skills at Citadel between 2005 and 2009 before his seven-year Balyasny stint, according to his LinkedIn profile and regulatory records. He founded Torq in Hong Kong in 2016 and won the backing of Blue Pool Capital, which invested billions of dollars for wealthy clients including Alibaba Group Holding co-founders Jack Ma and Joseph Tsai. Torq declined to comment further.
From a modest beginning of US$160 million (S$214 million), Torq expanded assets to a peak of US$1.5 billion in the first quarter of 2022. But the firm struggled to recover after a 3.7 per cent loss that year, despite topping the 16.5 per cent slump in a Eurekahedge index of Asia-Pacific stock hedge funds and the fund’s small gain in 2023.
Investors once favoured hedge funds of a moderate size that specialise in a single strategy and charge lower fees. Fledgling funds often produce superior returns due to their ability to trade in and out of positions unnoticed, as well as explore profitable opportunities too small for larger rivals.
In recent years, however, allocators like pensions and foundations have increasingly gravitated towards large firms whose diverse investment pods help churn out consistent returns, even in market downturns.
Since 2017, 55 pod shops have nearly tripled their combined assets to US$368 billion, during a period of tepid growth for the rest of the global industry, according to a September report from Goldman Sachs prime brokers.
Armed with fresh money and often an ability to pass on some or all expenses to clients, those firms hired aggressively to maintain their edge. They now command 27 per cent of global industry headcount, the Goldman Sachs report showed.
In Hong Kong, licensed employees of 10 pod shops surged to 596 by Jan 12, almost three times the 2019 figure, according to Webb-site.com, which aggregates data from the local securities regulator. Their expansion has been increasing industry pay pressure.
Industry veteran and chief executive officer of PAG, Mr Chris Gradel, said some employees from its hedge fund platform business were poached by rivals with eight-figure signing bonuses. Outside direct rivals and banks, the likes of Torq and Pinpoint Asset Management have been primary hiring targets, as funds that trade with carefully balanced long and short wagers have historically been a small subset of the Asian industry.
Two portfolio managers who were among Torq’s most senior investors from its early days departed for such rivals in the past year. Mr Martin Kronborg was poached by Millennium and Mr Sojiro Konishi is heading to Balyasny, according to the regulatory registry and a previous Bloomberg report.
Pod shops are notorious for their high staff turnover. Many job candidates still prefer single-manager hedge funds with bottom-up research styles, longer investment holding periods and job security, said Mr Mullally.
Still, “there is a certain degree of inevitability that there will be fewer single-manager shops launched”, he added. “You will see some other single-manager shops inevitably find that it’s just too difficult to lift over time.” BLOOMBERG
