Due to government restrictions and social distancing recommendations, all our networking events in Tokyo, Singapore, Hong Kong and Australia are currently on hold. We are monitoring the situation and hope to be able to resume our event schedule soon.
Monthly Archives: January 2021
Leon Chik has joined the investment team at the Neutron Asia Absolute Return Fund. Leon was most recently at JP Morgan as Head of Asian Small/Mid Cap Companies.
Broadridge Financial Solutions has appointed David Ingleson in Singapore as its COO for Asia. He has spent the bulk of his career at BNY Mellon where he most recently was Head of APAC for Eagle Investment Systems, a fintech subsidiary of the company.
Eurekahedge: Hedge fund managers were up 3.30% in December and returned 11.68% in 2020 – recording their best annual performance in over a decade. In comparison, the underlying global equity market as represented by the MSCI ACWI gained 12.32% in 2020, despite its 21.44% decline in the first quarter. Around 34.6% of the constituents of global hedge funds have outperformed the global equity market throughout the year and 18.0% of them delivered an annual return in excess of 20%.
The hedge fund industry’s assets surged to a record $3.6 trillion in 2020, according to data from HFRI. The final quarter of the year saw net asset growth of US$290 billion. Strong performance for many funds helped in growing assets. The HFRI Fund Weighted Composite Index gained 11.6% in 2020.
Vincent Duhamel has been appointed Board Director of Sectoral Asset Management in Switzerland. Vincent has spent a big part of his career in Asia, including serving as Head of Asia for Lombard Odier, CEO of SAIL Advisors, Chief Executive of State Street Global Advisors Asia and MD at Goldman Sachs. He is also a former Chairman of the CFA Institute.
Rahul Gupta has joined Fuchs Capital Partners in Singapore as Investment Analyst and Trader. He has previously worked at hedge funds Balyasny, Millennium, Och-Ziff and Dimensional.
Ferguson Hyams Investment Management in Australia has started to test run a new Asia equity long/short strategy inhouse with its own capital. The strategy buys individual stocks based on a data-driven proprietary scoring model and, depending on the market environment, hedges the market risk of the portfolio via short index ETFs or futures.
Weili Chiu has set up Macro Power Capital Management in Singapore of which he is CEO and CIO. The firm intends to launch a global macro hedge fund. Weili has most recently been a proprietary quant trader focused on equity indices and FX. He started his career at the Government of Singapore Investment Corporation (GIC) where he worked in the quantitative team.
Benedict Ho, Co-Founder and Managing Partner of MaiCapital, a blockchain and cryptocurrency-focused hedge fund firm in Hong Kong that Benedict set up with Michael Wong, talks to HFC’s Stefan Nilsson about navigating the ever-changing environment that crypto investors operate in.
MaiCapital Limited is a multi-strategy hedge fund management firm specialised in blockchain and cryptocurrency investments and deploying quantitative trading and arbitrage strategies. Benedict Ho has 17 years of experience in overseeing investment and business operations in institutional asset management companies. He oversaw Fubon Bank’s pension fund and its fund business before co-founding MaiCapital. Prior to Fubon, he was in charge of the trading desk at a multi-billion hedge fund. Ben holds a Master’s degree in Management Science and Engineering from Stanford University and a Bachelor’s degree in Computer Engineering from the University of Washington.
Tell us the story behind you launching MaiCapital in 2018.
MaiCapital was co-founded by Michael and me. We met back when we were students at Stanford and after we graduated in 2002, we pursued different career paths – Michael went into the tech world working on developing Wi-Fi and 4G/5G technologies while I went into the finance world, running trading desks at MCP and later Fubon Bank’s provident fund. However, as we had been heavily influenced by the entrepreneurial spirit in Silicon Valley, we had always been on the lookout for opportunities to start our own business, looking for opportunities that can utilise our combined expertise across finance and tech. Finally, the blockchain revolution arrived and an opportunity presented itself. During the remarkable growth year for the blockchain and crypto industry in 2017, we saw a plethora of investment funds appearing in the market, being offered to investors as if they were all proper investment products. But, in fact, many of them were just prop shops run by a few programmers who have no clue about managing other people’s money nor protecting investors’ interests and managing risks. This presented a perfect start-up opportunity for us – an opportunity that can tap into the immense potential blockchain brings to the hedge fund industry, while at the same time one that requires relevant industry veterans with deep experience across asset management and technology to execute towards. So, in early 2018, we decided to start MaiCapital – to build a truly institutionalised asset management business for the blockchain and crypto industry. Having spent more than 15 years each in our respective industries, both Michael and I understood that that for us to build a sustainable and scalable business, especially one that is in the business of managing other people’s money, we must have a legitimate, proper and institutionalised setup starting from day one. Thus, upon starting MaiCapital, we filed an application to Hong Kong SFC to be Hong Kong’s first licensed hedge fund manager to manage a thematic blockchain fund. And the rest is history.
What can you tell us about MaiCapital’s impressive team?
Our management team comes from a diverse background with different skill sets. I am from a buy-side trading background. Before I co-founded MaiCapital I was in charge of the investment company of Fubon Bank in Hong Kong where I managed the pension fund for their employees. Before Fubon I worked at MCP Asset Management for nine years. I oversaw the trading desk at MCP. They are one of the biggest hedge funds in Asia with US$6bn in AUM with clients from sovereign wealth funds and major banks. Our co-founder Michael is my Stanford schoolmate. He has a strong technical background. He started investing in digital assets and crypto companies in 2015. Marco is an ex-Goldman Sachs director where he oversaw the e-FX business. At MaiCapital I am the portfolio manager while Marco and Mike overlook sales and business development.
What sets MaiCapital’s strategies apart from other crypto hedge funds and blockchain funds?
MaiCapital is one of the first SFC regulated hedge fund managers focusing on blockchain technology and virtual assets-related investments. The target clients are family offices, financial institutions and high net worth individuals. MaiCapital’s flagship product, the Blockchain Opportunity Fund, provides investors with a single stop solution to gain exposure to the biggest and most promising virtual assets, eliminating the trouble of maintaining multiple private keys, wallets, exchange accounts and complex tax filings. The Blockchain Opportunity Fund is an actively managed absolute return fund. The fund will do both long short. The fund aims to generate attractive returns for our investors with reduced volatility and minimised drawdowns. The fund is multi-strategy with a mix of cross-exchange crypto pair arbitrage, quantitative trading and systematic trading by our proprietary technical model. MaiCapital proprietary trading analyses a lot of market and on-chain data. We will quantify factors such as momentum, activity, media sentiment and go long the ones with the best potential return by its metrics. Our team works with large data sets to generate trading signals and building trading models. Volatility is a major deterrent to institutional investors investing in this market. I think that in 2018 you saw a failed case for the crypto hedge fund industry. The average cryptocurrency hedge fund was down over 71%, based on Eurekahedge data, as most of them were just buy-and-hold or long-only strategies. When you mention the word hedge fund, investors are really expecting you will be able to generate profit in both bull and bear markets, that is why they pay you 2 and 20. Most of the funds in the cryptocurrency space are long-only. Our risk management system differentiates our product from other blockchain funds which are mostly long-only with a buy-and-hold approach. When the market crashed on Covid-19 in March with bitcoin plummeting over 50% intraday, our fund did not suffer from any drawdown that day thanks to our hedging strategy. There were a few hedge funds that blew up and shut down during that time.
How do you deal with the ever-changing crypto world where you have to deal with not only asset volatility but also evolving regulations and changing taxation?
By literally working 24/7. But kidding aside, it is indeed quite a challenge to keep up with the ever-changing environment that we operate in. We recognised early in the game that we must have a highly capable, cross-functional team, with expertise spanning across finance, compliance, investment and technology, that can comprehensively monitor all the changes relevant to our business and also come up with innovative ways to address new operational challenges that come along with the changes. We are very grateful to have formed such a team at MaiCapital and we aim to continue to stay nimble so we can adapt quickly as the industry continues to evolve.
How do you as a trader deal with keeping assets safely in custody while at the same time being able to trade in a timely and efficient manner?
It is always a debate about convenience versus security. We do not want our assets connected to the internet but we will need to have access to the assets periodically so we can trade them. The turnaround time from custodian is usually one day and one day is a long time for the crypto market. The price can move 20%-30% in a day for cryptocurrency. Depending on market conditions we will decide the allocation between off-line custodian or on-line cryptocurrency exchange. We have a limit on our exposure to any individual crypto exchange to limit our risk to each counterparty. I think this issue will be solved eventually when bigger players enter the space to provide prime brokerage solutions for cryptocurrency.
What type of investors are you seeing allocating to your funds?
We have high net-worth individuals and family offices allocating to our funds in the past 22 months. Four of those high net-worth individuals are also listed-company owners. Recently, we are now seeing more funds of funds and external asset managers inquiring about our fund products after bitcoin surpassed US$30k. We are expecting larger financial institutions start looking at this asset class soon.
What about your service providers – are they now able to provide an institutional-grade service to an emerging asset class such as cryptocurrencies?
The number of crypto-friendly service providers has increased compared to when we launched our first fund 22 months ago including fund administrator, custodian, crypto-friendly fiat bank, licensed counterparties. However, we have yet not seen a traditional prime broker that services cryptocurrencies as an asset class.
Your business is based in Hong Kong. Your strategy is a global strategy and could be managed from anywhere. Why did you decide to base the business in Hong Kong?
We based our firm in Hong Kong because it is one of the leading global financial centres. The SFC has established itself as a world-class market regulator recognised by its peers and market participants. According to HKEX on 31 December 2020, market capitalisation reached a record high of $47.5 trillion. We are well-positioned here in Hong Kong to capture a part of the capital as interest in crypto assets increase. China is also an untapped market for regulated virtual asset funds. We believe that via the Hong Kong-recognised regulatory framework of crypto assets, we can attract Asian investors, including Chinese ones, to invest in this new asset class.
The Neutron Asia Absolute Return Fund did rather well in 2020. HFC’s Stefan Nilsson checks in with portfolio manager Jonathan Garrick in Hong Kong to talk about the investment strategy, its performance drivers and the recent expansion of the investment team.
Hong Kong-based Jonathan Garrick is the Portfolio Manager of the Neutron Asia Absolute Return Fund which is part of BRIC Neutron Asset Management. Jonathan has over 19 years’ experience in the financial markets working in London, Singapore and Hong Kong specialising in Asia ex-Japan equities. He graduated from Nottingham Trent University with a BA (Hons) in European Business with Spanish. Formerly, the bulk of his career was spent focusing on hedge fund coverage at HSBC, Bear Stearns and Citigroup. There, he was responsible for broking strategies that included equity long/short, event-driven, value and growth. Prior to that, he was Head of Asian Sales-Trading at Cazenove responsible for pan-Asian trading for a global client base. In 2009, Jonathan left investment banking to set up a concentrated long/short greater China fund with private money based in Hong Kong.
Tell us about your Asian absolute return strategy.
It is a concentrated, high conviction portfolio employing a bottom-up, fundamental approach seeking to generate positive returns in all market conditions. We focus on identifying companies in the process of change or transformation. For example, emerging industries, corporate re-organisations or companies with a clear catalyst of change such as regulatory changes, new products or services. When industries or companies transform, we aim to capture the benefits.
You have opted to manage a relatively concentrated portfolio of stocks. How concentrated is it and why and how did you arrive at this approach to managing a portfolio?
We aim for a maximum of 20 long positions with the top 5 holdings typically accounting for 35%-45% of the NAV. Our research process identifies candidates that fit our strategy and criteria then our analysis determines a high conviction case for investment. By limiting the number of holdings in the portfolio it allows us to focus our attention on the best ideas we can find, then allocate our investors’ capital to these best ideas. It also provides hurdle criteria for new investment ideas that must improve the portfolio. All the holdings in the portfolio are due to their specific investment case and uncorrelated to the broad market indices or an ETF.
Your strategy had quite a good result for 2020. What were your performance drivers last year?
In 2020 we focused on numerous corporate actions throughout the year. Several of our main holdings were involved in corporate reorganisations or spin-offs as the new listing criteria, valuations and investor appetite were highly favourable. In many cases, companies with loss-making emerging business units were able to create a separate listing for the unit at an attractive valuation for growth investors to the substantial benefit of shareholders. The IPO market was also buoyant. However, for many of the popular deals, the allocation for a smaller fund was virtually zero so IPOs made little contribution for us. With regards to sectors, there was notable exposure to the fast-expanding internet of things and healthcare companies.
Your portfolio seems to have quite a lot of exposure to Greater China. How have the US-China tensions of recent years impacted how you look at this market?
Adverse changes in regulations are a major risk to our portfolio. In the last couple of years, the US-China trade tensions have weighed heavily on the broader markets. The imposition of tariffs, executive orders and the entities list together with abrasive headline tweets created a volatile environment and heightened the risks and uncertainty. For us, we remained focused on specific investment ideas with a distinct catalyst. In Greater China, we were domestically focused and positioned in companies that were to benefit from government policy, corporate action or behavioural changes.
You have recently added your old colleague Leon Chik to the investment team. You have worked together in the past but at bigger institutions. How is it different now that you’re working together in a small team at an independent business?
We first worked together in 2005 and have kept in touch over the years talking at length about companies and markets. He is dedicated and highly experienced with a broad knowledge of companies from many diverse industries. He was the number 1 rated analyst for Institutional Investor for HK/China Small & Midcaps and consistently in the top 3 from 2011 to 2017. More importantly, he has a strong work ethic and a good nose for ideas. In a bigger institution, you both have your specific roles and responsibilities and only interact when they overlap. In the fund, we will both work towards our common goal and interact at many different levels. He has a thorough in-depth research process with a strong analytical foundation. With a long history between us, we can speak freely and it is more efficient and effective to have quick frank conversations and be able to stress the investment case and gauge the level of conviction. This level of communication is critically important to us.
2020 didn’t follow the plan for any of us. What macro factors do you think are the ones that may impact Asian equities in the coming year?
In the coming year, the main macro factors look to be increasingly constructive for Asian equities. The Biden administration should bring the benefit of a less antagonistic US-China relationship. The likelihood of a larger US government stimulus and spending together with highly accommodative monetary policy brings the fair wind of a weaker US dollar that should prompt more equity inflows to emerging markets. Global governments including China will look to ramp up their domestic economic recovery with consumption boosting measures and infrastructure spending. For us in Asia, the impact of Covid restrictions seem to be diminishing. There is a notable improvement in the economic data and company operating statistics and as a consequence, the corporate earnings rebound in 2021 and beyond should be considerable. Asian companies, particularly in Hong Kong and China, are now incentivised to re-organise with new listing rules and enticing valuations. In 2021 there will be more IPOs, M&A and spin-offs to crystalise value providing a rich pipeline of opportunities for investors.