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James Williams, Hedgeweek

Asian investors targeting London real estate investments, Stratton Street to focus on Asian investors for its RMB Bond Fund…


London-based hedge fund manager, Stratton Street Capital LLP, aims to raise assets from Asian investors with its highly flying renminbi bond hedge fund. As reported by Bloomberg, the USD215million Renminbi Bond Fund has returned an impressive 23 per cent this year.

It invests in dollar-denominated investment-grade bonds and uses non-deliverable currency forward to hedge investments to the Chinese currency.

Since its inception in November 2007 the fund has returned 86 per cent according to managing partner Andrew Main. Main said that the firm was beginning to raise its profile in Asia and added: “We’re seeing a lot of interest at the moment. We’re the only renminbi fund with a five-year track record with positive returns every year and we have demonstrated outperformance against other funds in Asia.”

Currently, the majority of the fund’s investors are Europe-based, with only 10 per cent coming from Asia. Biggest contributors to the fund this year were investments in the Middle East including Qatar and Abu Dhabi, as investors raise their interest in nations with strong balance sheets said Main.

Despite concerns that China’s economy may slow towards year-end, Main said: “However, with further easing measures on the agenda as well as stepping up of investment projects and infrastructure spending, we feel China is still heading for a soft landing.”    

Kevin Kwong, one of the partners at Hong Kong-based Senrigan Capital, the event-driven hedge fund backed by Blackstone Group, has left the firm reported The Economic Times this week. Kwong is to start his own investment firm, sources familiar with the matter said. Kwong’s departure comes at a time when Asia’s hedge fund industry has hit a rough patch, with investors having pulled out USD1.35billion in net assets through October this year according to Eurekahedge data.

Rather than follow his peers (such as Senrigan boss Nick Taylor) and go down the hedge fund route, Kwong will be setting up The Aria Group, a family office that will run multiple investment strategies according to the sources. Senrigan Capital’s assets have hit the skids, with assets having more than halved on the back of an 8.6 loss last year and a 15 per cent loss through September this year. 

BlackRock Inc. has said that demand is rising among Asia-Pacific investors for less liquid hedge fund investments reported Bloomberg this week, as US and European banks continue to deleverage and shore up their balance sheets. Since January 2011, more than half of assets raised in BlackRock’s fund of hedge funds division has gone into longer-term special situation investments, such as direct credit lending to SMEs who need to find alternative funding channels and mortgage backed securities (MBS).

Joseph Pacini, Asia-Pacific head of Alternative Investment Strategy Group said that two thirds of the allocation was made in the past 12 months as macroeconomic concerns eased. Pacini was quoted as saying: “Over the last year, we have seen a noticeable shift from nervousness about investing to interest in where the markets are, what’s the dislocation and where we should be focusing now.”

He said that investors were looking at opportunities that included commercial real restate and aviation financing to boost returns amid low interest rates. Pacini also added that Asian institutions have expressed interest in investing assets through BlackRock funds, tailor-made accounts or alongside BlackRock funds.  

Asian investors are focusing their investments on London office space, pushing investment into London to levels not seen since before the financial crisis reported this week. The bulk of the assets are coming from private investors and hedge funds in China, Malaysia, South Korea and Singapore, with a particular focus on the City, West End and Docklands areas.

So far this year, GBP14.7billion has been invested into London, way ahead of New York (GBP9.7billion) according to data from real estate research firm Real Capital Analytics. The primary driver for this increased allocation into real assets is, of course, a desire for higher yields. With the UK’s bond market holding up, investors increasingly view the UK, and specifically London, as a safe haven.    

As point out, the most significant deal this year has been the GBP400million purchase of the iconic Battersea Power Station by a Malaysian-led consortium in September. The group plans to convert the space and surrounding area into a GBP8billion office, shopping and apartment complex. Data compiled by Jones Lang LaSalle shows that Malaysia’s state pension fund and the Korea Teachers’ Credit Union are among the biggest investors coming out of Asia. So far, they have invested GBP1.77billion in income-generating office buildings.

As the search for yield continues, London could find itself further awash in real asset inflows along the Thames in 2013. 

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