Asian hedge funds ditch short-selling for long-only game

"If you are a small long/short manager, it is very difficult to fight this battle. That's one of the reasons why some managers are sticking to long-only," he said.

SHORT-SELLING DISTRACTION

In a letter to investors titled "time for a change", Nicholas Harbinson, a former Merrill Lynch and Goldman Sachs executive who founded Tantallon in 2003 with former Morgan Stanley executive Alex Hill, told clients that short selling had been a distraction and had cut gains from a long-only portfolio.

A long-only Tantallon Fund would have generated a 143%- return since launch, he said. Instead, the long/short fund produced a 55%-gain since its inception in late 2003 through May 2012. Its assets have fallen to just USD 35 million from USD 1.6 billion in 2007 as investors have put their money elsewhere, data compiled by Reuters showed.

"Shorting is possible. Some people do it exceptionally well," Singapore-based Hill told Reuters.

"Our experience though has been that we, while profiting from shorting from time to time in extreme periods, have found that over the longer run, our long only performance is better than the combined long and short performance."

Raj Mishra, founder of Singapore-based Indea Capital, told clients in a letter last month that "shorts have been a drag on performance" of his long/short funds, while the long-only strategy had produced an excess return of 92 percent over the last 92 months. He will focus on long-only funds from July 1.

"The economics of maintaining a fund which is not of big size is not favourable. Also, not a lot of assets are going to long/short funds so then why waste our time there?" Christopher Wong, fund manager at ARN Investment Partners, said.

Wong is shutting down his long/short hedge fund ARN Asian Enterprise after its assets fell to just USD 26 million from the more than USD 500 million it managed in 2007. He will now focus on his long-only ARN Newly Industrialised Economies Fund.

THE WINNERS

Long-only players have grown assets under management. Arisaig Asia Consumer Fund has increased its assets to USD 2.4 billion from about USD 1.6 billion two years ago. AR New Asia Fund has tripled assets to USD 600 million-plus in the last three years.

Other big Asian players include Singapore-based Arohi Asset, with USD 743 million at the end of December, and Hong Kong-based Overlook Investments, with USD 1.9 billion, according to filings with the US Securities and Exchange Commission.

The shift has also benefited smaller players such as Singapore's One North Capital, which has grown assets more than nine-times to USD 90 million from its launch three years ago. Albizia ASEAN Opportunities has grown assets to about USD 75 million from USD 9 million two years ago.

"There is an oversupply of long/short equity in Asia compared with the demand so it's an incredibly difficult place to raise assets, whereas there's a relatively small supply of good quality, unconstrained long managers," Douglas of GFIA said.

"That's really the only bright spot to be honest," he said.