Skip to content

Credit Markets in China and India Are Focus for Asia Hedge Funds

The rapid growth of hedge funds in emerging Asia was underscored by their increased activity in the highly volatile and opportunistic credit markets of China and India, according to a study released today by the financial services industry consultancy Oliver Wyman. Nearly 80% of the largest Asia-focused hedge funds are investing in China and India's credit markets, reflecting the growing importance of the Asia Pacific region to the $2.5 trillion hedge fund industry worldwide.

The study, which gauged the market and product preferences of Asia-focused hedge funds active in credit markets, revealed that trading in certain products is limited by low liquidity, but that fund managers expect a steady maturation of the credit market throughout the region. The investment preferences of 60 of the largest Asia-focused hedge funds were examined for the study.

The study also shows that, in addition to trading a range of credit products, Asia-focused hedge funds are investing heavily in special situations and private placement deals, indicating growing confidence in the financial prospects of an array of the regions emerging corporations.

A favorable environment for hedge funds continues to develop in Asia, said Bradley Ziff, director of the hedge funds advisory practice at Oliver Wyman. Not only are there more than 600 funds domiciled in Asia, but hedge funds have become an important part of the capital equation that is central to the growth of Asian economies.

Hedge funds see more reward than risk in developing credit markets

Five of the top 10 most-attractive Asian markets for credit-focused hedge funds are developing countries. After China and India, the most attractive emerging credit markets for hedge funds are Philippines, Thailand and Indonesia. The growth prospects for infrastructure, utilities, and commodities companies are fueling hedge fund trading of credit products in these countries.

Credit Market Activity for Asias Hedge Funds
1.   China 78%   6.   Philippines 44%
2.   India 76%   7.   Australia 39%
3.   Japan 71%   8.   Thailand 33%
4.   Taiwan 59%   9.   Indonesia 30%
5.   Korea 45%   10.   Hong Kong 29%

Whats novel is that, despite the regions heavy reliance on developing economies, a growing amount of capital is focused on credit markets in Asia, said Bradley Ziff of Oliver Wyman. Hedge funds and dealers recognize that, in the coming years, credit products in emerging Asia will present some of the most profitable opportunities for trading and managing risk.

Private placements and special situations critical to hedge fund business in Asia

75% of the hedge funds studied consider special situation deals in Asia important to their business. Of those, about half consider special situations very important.

79% of the hedge funds studied are active in privately-placed high-yield debt deals in Asia. Acknowledging limited liquidity for these investments, funds prefer to limit tenure to between two and five years.

According to the study, Indonesia, with its wealth of natural resources, is among the most important countries for hedge funds seeking special situations and private placements.

The significant activity in private deals in Asia illustrates hedge funds willingness to invest directly in promising, asset- and resource-intensive companies that are central to the development trends of the region, noted Ziff, author of the study at Oliver Wyman.

Asia hedge funds trade a range of credit products

According to the study, corporate bonds are the most actively traded product (86% of funds). 77% of funds are active in trading credit default swaps, 46% are trading convertible bonds and 32% are trading bank loans.

As a group, the hedge funds studied invest equally in high-yield and investment grade credit products. 45% of the funds have a preference for high-yield and 41% focus on investment grade.

36% of funds say they trade local indices and that number is expected to rise as the indices become more representative of local economic trends.

Liquidity expected to be short-term concern in Asia credit markets; emergence of structured credit market predicted

Fund managers cited limited liquidity as a constraint to business, particularly in single-name credit default swaps, in certain regions. However, managers predict credit spreads in Asia will continue to widen, creating an increase in trading volume as volatility rises.

Already, about a quarter of funds in Asia invest in structured credit products. Several participants expected their investment in structured credit to increase significantly.

The interest in a spectrum of credit products by Asias hedge funds is leading the regions credit markets to develop in a unique way. Current levels of support for the issue of new debt and loans in Asia indicates to us that there soon will be enough underlying collateral in circulation for the formation of structured credit products, observed Ziff.

About the study:

For the study, Oliver Wyman interviewed 60 of the largest Asia-focused hedge funds through the third quarter of 2007. The respondents represent a significant portion of the hedge fund trading activity in Asian credit markets. Interviews focused on participants' investment strategies, regional perspectives, and credit product preferences.

About Oliver Wyman:

With more than 2,500 professionals in over 40 cities around the globe, Oliver Wyman is the leading management consultancy that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation and leadership development. The firm helps clients optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is part of Marsh & McLennan Companies (NYSE: MMC). For more information, visit

Source: Businss Wire

Posted in Main Page.

No Responses (yet)

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

Some HTML is OK

or, reply to this post via trackback.

Disclaimer: The website solely provides information about HEDGE FUNDS INDIA space. No data or statement herein is or should be construed to be a recommendation for the purchase, retention, or sale of the securities referred to herein and we accept no liability for the consequences of your reliance on this data and information. The value of investments and the income derived from them may fall as well as rise. The information in this website is based on data gathered from publicly available websites and other information mediums. We have not independently verified such information , do not represent it as accurate, true or complete, make no warranty, express or implied regarding it and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use. Investments in hedge funds, private equity, venture capital and other private investment funds are speculative and involve a high degree of risk. You could lose all or a substantial amount of your investment. This website does not list, and does not purport to list, the risk factors associated with an investment in any of the funds listed on this site. We do not represent any hedge funds, private equity or investment/financial advisors nor give any investment recommendations.