Although Singapore is located far from the skyscrapers of New York and high towers of London, it has managed to produce hedge funds beating global rivals.
Singapore is home to two of the top 10 hedge funds in 2019, and a third is partly based in the island nation. Meanwhile, the rest of the top ten hedge funds are found in the U.S., while none are found in Europe or Hong Kong, according to data from Eurekahedge.
The hedge funds' individual successes come at a time when many investors are becoming skeptical about pouring large amounts of money into the asset class due to their high fees and mediocre returns. Global outflows total $88 billion so far this year, more than double 2018, data from eVestment shows.
Hedge Funds In Singapore Shine
As a group, hedge funds in Singapore are shining, generating an average return of 9.4 percent for clients in 2019, according to Eurekahedge. That beats the 7.6 percent return for Asia and 6 percent return for Europe, plus edges over the 7.6 percent gain by Eurekahedge's North American Hedge Fund Index this year.
Observers point out some theories behind the success of Singapore's chart-toppers. The first is that the region's wealthy are becoming bigger risk-takers, willing to plunge millions into funds despite facing massive volatility. On a per-capita basis, Singapore is one of the wealthiest nations on Earth with an outsized wealth management sector.
The second thesis is that the relative illiquidity of Singapore's stock exchange and lack of natural resources have combined with its high-pressure education system to produce smart, data-driven graduates who think globally. Almost half the country's hedge funds have a global geographic mandate.
More Comfortable With Risk
The relatively small size of Singapore's hedge fund industry - assets under management of $47.3 billion pale in comparison to $1.6 trillion in North America and $462.7 billion in Europe - may also mean investors in the more petite funds are more comfortable with risk versus their peers, which include pension and sovereign wealth funds that demand lower volatility even if that means less profit.
«There's a lot of money coming in - money that's willing to take more risks,» said Johan Sulaeman, a finance lecturer at the NUS Business School in Singapore, who was quoted in «Bloomberg».
Different Sizes Can Win
Vanda fund, a hedge fund in Singapore, manages only $222 million but experiences an annualized volatility at a whopping 72 percent. It returned 260 percent in 2017 only to plunge 49 percent the following year. Nevertheless, early backers remained loyal, and its fund manager Chong Chin Eai is taking steps to reduce volatility. The firm spends very little on office infrastructure and staff.
On the other spectrum, Singapore's Quantedge Capital, whose 63.1 percent return this year makes it one of the world's best quant funds, manages over $2.1 billion and has almost 70 staff and more than 600 clients. It targets annualized volatility of about 30 percent, far higher than what many larger funds with institutional investors are willing to stomach.
