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High-yield Asia debt boom spurs ex-RBS exec to start hedge fund
August 5, 2013 / 5:38 AM / 4 years ago

High-yield Asia debt boom spurs ex-RBS exec to start hedge fund

HONG KONG, Aug 5 (Reuters) - A trio of French ex-bankers led by former Royal Bank of Scotland Group managing director Geoffroy Wallier are planning a $40 million Asia fund, seeking to cash in on a red-hot Asian credit market that offers the potential for much greater returns than Western counterparts.

The launch, part of a global trend of bankers starting their own hedge funds as U.S. regulators increasingly restrict banks from trading with their own money, comes amid a notoriously tough capital raising environment for Asian hedge funds due to poor returns and the small size of many of the start-ups.

A boom in high-yielding Asian bonds, however, has meant that credit funds are gaining in popularity,

“Credits in Asia represents a real opportunity right now because there is a very big difference between emerging market credits and U.S. credits or European credits,” Wallier told Reuters in an interview.

“Some people are getting out of Asia right now, so we are quite happy to get in,” he added.

Wallier said while very few Asian companies had defaulted in the past, the rate is set to increase as economic growth in the region slows, boosting average market yield levels and offering high returns for fund managers that make the right picks.

Bank of America Merrill Lynch’s Asian index of high-yielding bonds traded 684 basis points over the yield of U.S. treasuries on Aug. 1, above the 463 basis points for its U.S. high yield index.

Asia has seen some 45 high-yield bonds issued for the year to date, raising $17.3 billion, compared with $10.9 billion from 27 deals for the whole of 2012, according to data from Moody’s Investors Service and Thomson Reuters.

The Hong Kong-based hedge fund, Orfi Capital Ltd, will start trading as early as the end of September, and will focus on U.S. dollar high-yield Asian corporate bonds and hedge interest rates.

Wallier has roped in former RBS colleague Benjamin Robinot and Alain Chanezon, a former equity derivatives head of exotic trading for Asia at Barclays Capital, as partners.

The French trio, who are getting initial capital mainly from European investors, expect the fund to grow to $50 million by the end of the year. Wallier said the hedge fund had capacity to take in $300 million given the current liquidity in the market.

“The market is not very liquid, which means it’s more difficult for large funds to move into that area,” he added.

Overall, the number of new fund launches in Asia in the first half of 2013 fell to 51 from 71 during the same period last year, making it the worst period for start-ups since 2009, according to data from industry tracker Eurekahedge.

Seven of the new launches invest in fixed income. Fixed income funds were the third best performing hedge funds in Asia last year, gaining nearly 13 percent.

The global hedge fund industry has largely recovered from the impact of the 2008 financial crisis, with assets growing above $2 trillion.

The industry in Asia manages about $141 billion, about $35 billion below the peak asset level hit in January 2008, data from Eurekahedge showed.

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