* Funds eye Asian equity returns, wide variety of markets
* Lower barriers to entry, start-up costs, taxes
* Top UK fund manager Anthony Bolton moving to Hong Kong
By Laurence Fletcher
LONDON, Nov 26 (Reuters) - Fidelity's Anthony Bolton is
unlikely to be the last top UK investor to move to Asia as hedge
funds eye up attractive investment opportunities and cash-rich
clients hungry for absolute returns.
While not strictly a hedge fund manager, Bolton made his
name as shrewd manager of Fidelity's top-performing Special
Situations fund, and on Thursday the firm said he will return to
managing money by running a new China investment portfolio out
of Hong Kong.
He is one of a growing army of fund professionals to show
interest in the region.
TCI has decided to close up shop after some high profile
failures in its activist strategy, but fellow hedge fund firms
Four Elements and Orchard Capital Partners, launched by former
managers at Stark Investments, are among new firms in the
region.
Davide Erro -- a former manager of the Hong-Kong and
London-based Gandhara hedge fund forced to shut up shop earlier
this year -- plans to launch a stock fund next year from his
Hong Kong base, according to the Wall Street Journal.
Marshall Wace has also opened an office in the region in
recent years.
"We are seeing a lot of high-quality managers launch in
Asia," said one prime brokerage executive who declined to be
named.
Hedge fund industry executives say managers are attracted by
the region's large variety of investment markets with different
characteristics, including Australia, Japan and China.
Meanwhile, firms are also drawn by strong outperformance
from the region -- the MSCI AC Asia excluding Japan index has
jumped 66 percent this year, more than double the 32 percent
gain from global equities.
"There are a lot of launches of Asia-focused funds located
in Asia -- there have been around 50 funds," said Eddie
Guillemette, managing director in Bank of America Merrill
Lynch's prime brokerage business.
"The performance of emerging markets has encouraged people.
The bet is that Asia will be the place to be in the next
two-to-five years."
"EVEN MORE ATTRACTIVE"
Many are, like Bolton, choosing to move to Asia to be close
to what they see as a growing investment opportunity, especially
compared with heavily indebted Western economies.
"It's not the end of the world for the UK but western
governments have effectively mortgaged the future, so faster
growth in an economy like China will look even more attractive,"
Bolton told a media briefing in Hong Kong.
Meanwhile, tax rates on top earners of 17 percent in Hong
Kong and 20 percent in Singapore compare favourably with the UK,
especially given a controversial plan to raise the highest
British rate to 50 percent from 40 percent.
Start-up costs are also generally lower than in London's
expensive West End -- Europe's hedge hub -- and boutique funds
can therefore get going with smaller asset bases than the $50
million or $100 million that many in the UK see as a critical
mass.
"Asian funds can launch with smaller AUMs than in Europe and
often start without large external investors," said Mark Bailey,
Bank of America Merrill Lynch's head of global markets financing
and futures, EMEA.
Many hedge funds, meanwhile, see growing wealth in Asia and
a strong savings culture as a way to replenish asset levels that
have fallen, often sharply, during the credit crisis.
Earlier this month Man Group, the world's biggest listed
hedge fund firm, picked out sales to private investors in Asia
as a "bright spot" for the group.
"Asia, we expect, will remain critical to Man's private
client fund raising capability," said Morgan Stanley analysts in
a note this month. Absolute return fund sales to Asia private
clients are "a material opportunity" for the industry, they
added.
Independent wealth management consultant Bruce Weatherill
said the shorter-term outlook many hedge funds adopt was
attractive to return-seeking Asia clients.
"They want to go for opportunities which are a search for
pure alpha and hedge funds play very heavily into that area."
(To read the Reuters Hedge Fund Blog click on
http://blogs.reuters.com/hedgehub; for the Global Investing Blog
click on http://blogs.reuters.com/globalinvesting/)
(Additional reporting by Parvathy Ullatil in Hong Kong and
Chris Vellacott in London, Editing by Sitaraman Shankar)
((laurence.fletcher@thomsonreuters.com; +44 20 7542 7729;
Reuters Messaging: laurence.fletcher.reuters.com@reuters.net))
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