Australia’s hedge fund industry is surfing a wave of financial innovation, treasury reforms, and soaring interest that is pushing it past the A$100 billion ($69.4 billion) waterline.
Paul Chadwick, Australia chairman of the Alternative Investment Management Association (AIMA), says the industry is an “inflection point” thanks to subdued equity and debt markets providing an ideal backdrop for hedge funds to become a fast-growing segment.
The Australian Securities and Investments Commission (ASIC) puts the combined assets of hedge funds down under at A$96.9 billion, have risen 45% between 2012 and 2014. AIMA membership meanwhile grew 25% in the last 18 months. Chadwick said:
“With innovative strategies coming to market, from alternative beta to strategies that target the capital lending functions once dominated by banks, we expect the number and types of hedge fund strategies to grow significantly.”
He added that a shift to hedge funds is being led by investors – particularly the super funds – fed up with mediocre returns from other asset classes. There also strong allocation uptick from Australia’s increasingly sophisticated family offices. Hedge funds have had a further boon from a Treasury-led removal of tax barriers for overseas investors in Australia.
But how are these funds performing? According to the ASIC, the largest hedge funds reported average returns of 15.6%, low leverage levels and adequate liquidity. So not bad. But even past the A$100 billion mark, Aussie hedge funds still represent a slither of the country’s A$2.4 trillion managed funds industry. So plenty of room for growth?
Photo: J.Lau88