UPDATE 1-Hedge fund Tiger Asia to return investor money

(Changes sourcing, adds details)

By Nishant Kumar

HONG KONG Aug 14 (Reuters) - New York-based hedge fund Tiger Asia Management LLC will return outside capital to investors by the end of August amid an ongoing investigation by Hong Kong regulators into possible insider trading, founder Bill Hwang told clients in a letter sent on Monday.

Hong Kong's Securities and Futures Commission alleges that Tiger Asia was given advance notice by third parties of forthcoming share placements by China Construction Bank Corp and Bank of China Ltd and shorted shares in the stocks ahead of the placements being publicly announced.

Tiger Asia has denied all the allegations.

Tiger Asia had regulatory assets under management of $2 billion at the end of December 2011, according to a filing with the U.S. Securities and Exchange Commission.

"I am writing to let you know that after much consideration, and due largely to a prolonged legal situation, I have decided to return outside capital to investors effective at the end of the month," Hwang said in the letter obtained by Reuters.

"We continue to work to resolve these matters in the U.S. and overseas and look forward to putting them behind us," Hwang wrote.

Officials with Tiger Asia, which has no physical presence in Hong Kong, could not be reached for comment.

After returning clients' money, Tiger Asia will become a family investment office and continue to invest in Chinese, Japanese and Korean markets with a focus on sectors such as telecommunications, media, consumer, property and financials.

Most of the firm's staff will continue to work in the family office, while a team of analysts will leave to set up a new Asia-focused fund, Hwang wrote.

Tiger Asia seeks to profit from long and short bets on securities in Asia. Between January 2001 and July 2012, it produced an annualised return of 15.8 percent. (Reporting by Nishant Kumar; Editing by Matt Driskill)