Hong Kong's Growth as Private Equity, Hedge Fund Venue Continues
Thursday July 28, 2005, 12:15 pm

HONG KONG, (BUSINESS WIRE) July 28, 2005 - Walkers, the global offshore law firm of choice for investment managers, financial organizations and international law firms, said today that a new analysis of the Hong Kong marketplace has found a 165 per cent increase in investment companies based there - with the overwhelming majority to them originating in the Cayman Islands - over the last three years.

In 2004, there were 28 investment companies, 21 of them originating in the Caymans, compared to 17 investment companies, 11 of which were from the Caymans, in 2001.

The Walkers analysis also revealed a 470 per cent, or $217 billion, increase in private equity funds raised in Hong Kong over the last three years, growing from $58.6 billion raised in 2001 to more than $276 billion in 2004.

"Given a surging local stock market and the growing global pool of money available for hedge fund and private equity investment, Hong Kong offers global offshore investors a jurisdiction that is savvy, sophisticated, and stable," Vicki Hazelden, managing partner at Walkers' Hong Kong office said, "precisely the characteristics that every investor craves.

With more than $60 billion invested in hedge funds across Asia today, the growth curve is clearly poised to accelerate throughout the rest of 2005 and into the future."

It is expected that hedge fund flows into Asia will grow even stronger in the wake of China's recent revaluation of the yuan. The upward tick in private equity deals is also expected to get a boost from the currency change.

In recent years, Asian hedge funds have grown from 162 funds managing $13.8 billion in 1999 to more than 500 funds managing in excess of $59 billion at the end of 2004 - with some experts putting that number at $65 billion today.

The Cayman Islands are a particularly attractive jurisdiction for Asia-focused hedge funds because the regulatory and legal framework mandates transparency and disclosure - a critical need for institutional investors and high net worth individuals - over and above even what the U.S. currently requires.

As a result of this increased activity in hedge fund and private equity deals, Walkers' Hong Kong office has seen a steady rise in transactions involving entities based in the British Virgin Islands and the Cayman Islands - two of the most significant sources of foreign direct investment into China. Manufacturing investments into China, especially electronics, chemicals and telecoms, make up a significant proportion the firm's private equity deal flow for the Hong Kong office.

Hazelden added, "As our own experience in Beijing, Shanghai, and Shenzhen shows, the opportunities in China continue to multiply and offer global investors a new, and newly prosperous, market. We are thrilled to play a part in this growth, especially given our stature as one of the world's leading hedge fund and private equity fund law firms, and one of the largest in Hong Kong."

Opened in September 2003, Walkers' Hong Kong office has grown from two lawyers to nine lawyers in two years, and includes attorneys who are fluent in Mandarin, Cantonese and Japanese. The Firm also recently announced that it has signed a lease for additional office space that will accommodate up to 12 more lawyers and plans to recruit at least six more lawyers in the next 12 months.

About Walkers and Walkers SPV

Based in the Cayman Islands with offices in the British Virgin Islands, Hong Kong, and London, Walkers offers high-level skills across the legal spectrum. Named by HedgeWorld Limited as the top law firm for hedge funds by total assets of funds and assets of non-U.S. funds, we act for a wide range of clients including major financial institutions, investment banks, leading law and accounting firms, major corporations of all kinds, partnerships, trust companies and other fiduciaries representing almost every country in the world.

Our aim is to provide clear, concise and practical advice based on an in-depth knowledge of the legal, regulatory and commercial environment in the Cayman Islands and the BVI. We are experienced in all types of international and cross-border transactions and we welcome a close working relationship with our clients and their other professional advisers.

Walkers SPV Limited is a licensed trust company wholly owned by Walkers, with a branch office in Tokyo. It provides experienced and expert management and administration of Special Purpose Vehicles (SPVs) as well as registered office and secretarial services for many companies and partnerships of all types.

For more information on Walkers or Walkers SPV, contact our Hong Kong office by phone at +852 2284 4566, by e-mail at info@walkersasia.com or on the Web at www.walkers.com.ky.

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Heavy hitters guarantee hedge edge for HK
18 February 2006
South China Morning Post

Small hedge fund start-ups trying to save cash and time may choose Singapore but heavy hitters targeting China still prefer to put up their signs in Hong Kong.

The two Asian financial hubs were almost neck and neck last year in the number of new hedge funds opening offices as well as in asset growth from new managers. But Hong Kong remains more than twice as large by assets under management as an increasing number of large funds call it home while many industry experts see a shift of cost-conscious boutique funds to Singapore.

Twenty hedge funds launched in Hong Kong last year, compared with 19 in Singapore, according to data from fund research firm Eurekahedge. Assets under management in Singapore more than doubled to US$5.14 billion, while Hong Kong added US$2.52 billion for a total of US$12.08 billion.

While the data shows that both cities remain magnets for Asian fund start-ups, many industry experts say faster registration times and lower costs are drawing boutique start-up funds to Singapore while Hong Kong remains attractive for larger funds that want to be closer to China and to the region's brokerage hub.

"A lot of the pure start-ups choose Singapore, as opposed to the super start-ups from the United States and Europe, many of which choose Hong Kong," said Matt Pecot, the head of Asia Pacific prime brokerage services at UBS. "Singapore is an easier place to start up because the taxes are lower, they offer assistance on [information technology] infrastructure costs and there are fewer regulatory demands."

In Singapore, funds with fewer than 30 sophisticated investors can apply for an exemption from rules that normally apply to securities dealers and fund managers and the government also offers tax breaks and other incentives to lure money managers to the city state.

Such regulatory exemptions are rare in Hong Kong and getting asset management and securities trading licences can take months, although registration times have been reduced in the past year.

"From a registration point of view Singapore is more attractive," said Nigel Poh, a director of advisory services at Eurekahedge in Singapore.

"Legal fees are as much as 20 to 30 per cent more in Hong Kong and if the licensing takes longer, the costs go up."

However, costs are only a small part of the equation, although the smaller the fund, the more weight cost and speed may have compared with other start-up factors. A fund's geographic investment target and where a fund's investors are based can beat any cost concerns.

"Whether you're a US$20 million fund or a US$100 million fund, the start-up cost is going to be the same and so proportionally it's a bigger slug you have to get back from good performance," said Mark Shipman, a partner at law firm Clifford Chance, which advises hedge fund start-ups.

"But some of the other things are that Hong Kong has a more developed equities market but Singapore is probably stronger on the fixed income side.

"China is just north of here and you're closer to the Japanese, Korean and Taiwanese markets but in Singapore you're closer to the Indian market."

Deciding where to set up shop can be as simple as having the managers decide where they want to live. "It's where senior people want to put their families and where you think you'll make the most money for your investments," said Peter Douglas, the founder of Singapore-based hedge fund consultant GFIA.

Regardless of the location, starting new hedge funds is likely to remain a hot business in the years to come as sluggish returns in the US and Europe prompt managers to look further abroad.

Asia is an attractive place for hedge funds to invest because liberalisation is allowing better market access and economic growth brings plenty of upside potential while the lingering inefficiencies of regional markets create arbitrage opportunities.

Mr Pecot said the US$85 billion in hedge fund assets invested in Asia accounted for about 7 per cent of the global total. However, the regional equity market capitalisation accounted for 16.5 per cent of the global total, indicating the region could see an annual inflow of U$12 billion to US$15 billion in the coming years.