Asian hedge funds hunt diversity - BNP Paribas CIB
 
Wednesday 06 January 2021

As global hedge funds pivot to Asia, increasing the proportion of female executives will provide the competitive edge firms need to grow in the region.


Major hedge funds in Asia are searching for diversification – in their teams as well as their investment portfolios.

As global hedge funds increase their commitment to Asia and top regional players grow in stature, leading firms are looking for more talent in the region. Increasing the proportion of female executives is a particular priority, a group of hedge fund leaders told a 100 Women in Finance event sponsored by BNP Paribas in November 2020. But accessing more – and more diverse – talent in Asia could require the industry to re-think its approach to how it develops its people, they added.

Many hedge funds see the potential to generate 'alpha' – or market-beating returns – in Asia because of its strong economic growth, broad spectrum of markets and ability to attract capital inflows as its financial markets open up, especially in China.

For Danny Yong, Co-founder and Chief Investment Officer of Dymon Asia Capital, there have been false dawns before, but this really could be the start of an Asian decade for hedge funds. "I actually think this time is different," he said. "The depth of the market, the growth of the talent and the capital flows have the potential to be massively favouring Asia in the next couple of years."

Many larger hedge funds diversify their exposure by bringing together different fund managers and investment strategies on one platform. Dymon itself combined its macro fund with a long-short equity fund to form a flagship multi-strategy fund. "We have seen that the big platforms, the multi-strategy funds are continuing to attract the bulk of the capital and I think this is a trend that is here to stay," he said. "Large investors want scale and stability."

From diversification to diversity

Greater diversity is likely to be critical for hedge funds with Environmental, Social and Governance principles becoming an increasingly influential factor in asset allocation decisions for institutional investors. In October, the Chief Investment Officer of Yale University's $31 billion endowment fund wrote to the fund's external investment managers about increasing diversity among their staff.

In Asia, some US-based hedge funds are becoming more diverse by becoming more local. "Our Asia exposure has grown pretty significantly," said Jonathan Xiong, Co-Chief Executive Officer for Asia Pacific at Millennium, noting that about 20% of its portfolio managers are based in the region.

Millenniumhas been pursuing a "regionalisation" strategy in Asia, he added. The trading/investment professional headcount has nearly doubled and is also increasingly open to non-English speakers in Asia, noted Jonathan.

Stamford, Connecticut-headquartered Point72 has also been expanding in the region, said Marc Desmidt, Head of Asia Pacific. Since opening Asian operations in Hong Kong in 2006, the firm has expanded to five regional offices. While Point72 sees growth opportunities in Asia across its different investment strategies, Marc said "there is no doubt that the greatest enabler for our growth is talent: we have a 'follow the talent' mentality."

Grow your own

The executives on the panel compared the battle to hire established investment talent in Asia with a contact sport, but Marc said his firm was increasingly focused on developing its own people. Point72 has an Academy for undergraduates and early-career professionals, he pointed out, as well as its emerging manager programme for analysts looking to become portfolio managers.

Improving gender diversity is an industry-wide priority. As well as meeting expectations from investors, hedge funds managed by women have performed strongly during a volatile year for markets. According to Chicago-based Hedge Fund Research (HFR), women-led hedge funds performed significantly better through the Covid-19 crisis: The HFR Women Access Index was up 6.9% in the year to the end of October, compared with a 1.1% gain for its broader industry measure.

Jonathan at Millennium said the number of women in trading roles in the region had been steadily increasing at his fund. The 2019 hiring of Singapore-based portfolio manager Archana Parekh had helped the firm access more female talent, he said. "Once Archana arrived, she opened us up to a whole new network through 100 Women in Finance and other women's programmes, where we are seeing a lot of talent."

Taking action

Hedge funds in the region are taking action to support career development for women. Dymon Asia Capital has established the Dymon Asia Womens' Network (DAWN), which hosts expert talks on topics like unconscious bias, and has a mentoring programme in place. Marc at Point72 said his firm is trying to be "deliberate" when it hires. "Where our pipeline is broadest, at a more junior level, so in our Academy and analyst programmes, we continue to put significant effort behind initiatives to drive a diverse slate," he said. "Where we can make a lateral hire of a female PM, that's important too. Younger female talent needs role models."

Diversity in all its forms is particularly important in Asia because of how fragmented the region is, said Danny at Dymon, adding that his firm has approximately 20 nationalities among its 200 people. But while he recognised the importance of collaboration and mentoring, Danny said managing money would always need "some amount of audacity, some amount of courage."

Marc at Point72 thinks that the industry needs to reconsider its approach to developing talent, arguing that pilots, doctors and chefs are not left to their own devices. "In these professions, no-one is left to figure it out on their own," he said. "Because if they do that, it's highly likely their consumers are going to be put at risk. Most professions work on an apprenticeship model where you are learning from people who have walked the path ahead of you."

As Asia becomes an increasingly important proportion of investment portfolios, cultural and gender diversity will provide the competitive edge for hedge funds growing in the region.

100 Women in Finance is an organisation which, through education, peer engagement and impact, aims to further the progress of women in the global finance industry by empowering them to achieve their professional potential at each career stage.



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