Hedge funds look to Asia: Merrill Lynch

Region's rules, growth potential pull factors while tighter regulations in US, EU prompt move

HONG KONG: Bank of America Merrill Lynch is helping more than a dozen multibillion dollar international hedge funds set up or re-establish a presence in Hong Kong and Singapore as the United States and Europe step up industry regulation.

Funds of hedge funds are also planning Asian offices, Mr Dan McNicholas, head of Merrill Lynch's Asia financing sales, said in a Bloomberg interview yesterday.

Hedge fund managers are tempted by Hong Kong's regulatory environment, the region's economic growth and potential investment opportunities as US and Europe propose raising taxes on the financial industry. London Mayor Boris Johnson has said as many as 9,000 bankers may leave the City due to a 50 per cent tax on bonuses announced last month.

'The business environment has been very friendly for managers when you compare to New York or London,' he said. 'You are seeing tax proposed and other restrictions on business that may make Hong Kong and Singapore attractive.'

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from speculating on whether the price of assets rise or fall.

Asia is expected to get more than 15 per cent of the US$50 billion to US$100 billion (S$70 billion to S$140 billion) of hedge fund inflows in the first quarter as funds correct their under-allocations to the region, Mr McNicholas said.

Soros Fund Management and GLG Partners are among those planning to set up in Hong Kong, sources told Bloomberg last week.

The UK last month imposed a 50 per cent tax on banks for bonuses exceeding &pound25,000 (S$57,000). It also raised taxes on residents earning more than &pound150,000 a year to 50 per cent from 40 per cent.

The European Union is preparing rules for hedge funds that would restrict the amount they can borrow and force them to use banks domiciled in Europe.

In the US, President Barack Obama has proposed raising taxes on fund executives, affecting general partners at buyout firms, hedge funds, venture capital firms and other partnerships, including real estate, oil and gas investments.

Asian equities outperformed the US last year, with the MSCI Asia Pacific Ex-Japan Index advancing 68 per cent compared with the Standard & Poor's 500 Index's 23 per cent gain.

Asia is leading the world's emergence from its deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates. China, South Korea, Taiwan, Hong Kong and 10 South-east Asian economies may expand 6.8 per cent this year from 4.2 per cent last year, according to a report last month by the Asian Development Bank.

BLOOMBERG NEWS

Source: Straits Times, 19 Jan 2010.