Emergent new finance: hedge funds and private equity funds in East Asia

ABSTRACT

Hedge funds and private equity funds are two of the most discussed features of contemporary global finance. This article explores the extent to which these new financial forms have arisen outside of the US and a small number of other advanced financial markets. There has been greater experimentation with global finance in emerging markets than is often acknowledged and domestic resistance to Anglo-Saxon business processes has not derailed the spread of new finance across the Asian region. The rise of these new financial industries, with the notable exception of Japan, would have been impossible without the commitment of one key domestic actor. Asian institutional investors, especially pension funds, have served as crucial financiers to hedge funds and private equity groups. The article concludes with caution concerning whether these new financial actors are set to capture significant global market share.

KEYWORDS:

• Hedge funds
• private equity funds
• East Asia
• new finance
• institutional investors
• emerging markets

JEL Classification:

• P51
• F65

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. For the remainder of the article, I remove the brackets around ‘new’ finance, although the meaning is the same. I prefer the narrower concept of Anglo-Saxon finance to the broader and less precise term of Western finance.

2. Access to this data-set was negotiated with the Eurekahedge group in 2016–2017.

3. One exception is the California public pension, which has been a vocal opponent of high hedge fund fees.

4. A search on Preqin's database reveals that there are 414 public pension funds that make hedge fund allocations and an even greater number of private pension funds, 727 organizations, that invest in hedge funds. For private equity, 554 public pension funds and 784 private pension bodies have made commitments.

5. India represents 97% of all South Asian investments from 1999 to 2016.

6. The monthly change is determined by the returns of the hedge fund and by the level of new capital invested or existing capital withdrawn.

7. Based on Eurekahedge data tracking the five-year volatility levels of Asian hedge funds.

8. All calculations are made from Dealogic data, accessed by the author in April 2017.

Additional information

Funding

This work was supported by a Strategic Research Grant from the City University of Hong Kong [grant number 7004318].

Notes on contributors

Justin Robertson

Justin Robertson is an associate professor in the Department of Asian and International Studies at the City University of Hong Kong. He is the author of Localizing Global Finance: The Rise of Western-Style Private Equity in China and US-Asia Economic Relations: A Political Economy of Crisis and the Rise of New Business Actors. His most recent research explores the extent to which hedge funds, private equity funds and offshore structures are materializing in emerging markets.