One of Singapore’s longest-running hedge funds is shutting down on US investor pullback

[[SINGAPORE] One of Singapore’s longest-running hedge funds, New Silk Road Investment, is shutting down after weak returns and a pullback by US investors in Asia led to a sharp drop in assets.

The firm, started by two finance veterans about 16 years ago, saw assets under management plummet to US$615 million as at December, from almost US$2 billion as recently as 2021.

The closing comes as smaller hedge funds face increasingly tough conditions, from turbulent markets and geopolitical strife to the popularity of giant rivals whose myriad investment pods have attracted much of the available money.

“Our traditional source of funding from the US institutions had over the last several years been less enthusiastic about liquid equity investments in Asia, in no small part due to geopolitical reasons,” said co-founder Hoong Yik Luen. All remaining capital will be returned to investors and the vehicles shuttered, he added.

New Silk Road was a relative pioneer in Singapore’s finance scene when it was founded in 2009 by Hoong, former head of Hong Kong-China equity products at Deutsche Bank, according to his LinkedIn profile, and Raymond Goh, ex-head of Asian equities at GIC.

At the time, the entire hedge fund market in Singapore managed just S$59 billion, a far cry from S$327 billion as at December, according to the latest available data from the Monetary Authority of Singapore.

The fund was among the early foreign investors in China, with a team on the ground in Shanghai. When it was approved for investing in yuan-denominated mainland Chinese stocks and bonds under the Qualified Foreign Institutional Investor programme in 2012, fewer than 200 firms had received such licenses from the China Securities Regulatory Commission.

But in recent years, performance suffered. Three of the past five years saw negative returns for both the Asia Landmark Fund and the China Fund, with declines of 28 per cent and 19 per cent respectively in 2022, according to sources familiar, who requested not to be named because the matter is private. That same year, China’s benchmark CSI 300 Index plummeted by 22 per cent. The slump stretched into 2023, hitting many veteran China investors and forcing some to close shop.

The firm had been particularly popular with US institutional investors, many of whom became wary of investing in Asia and began redeeming their funds, according to sources familiar.

“We are just one of many active value funds in Asia that have not been the favour of the time,” Hoong said. The market has changed in such a way that it “disfavours longer-term fundamental investing approach with value bias”.

New Silk Road attempted to scale back earlier this year, reducing staff in Shanghai and shuttering a South East Asia fund it had launched more recently, Hoong added. It’s not clear how many staff will be affected.

While acknowledging that “active management in Asia has been tough”, Hoong said the firm was not forced to wind down due to deficits. He added that Singapore is still a successful hub for hedge funds. Instead, the two founders, both “crossing 60” years old, opted for a slower pace, and their successors were not ready to take the reins.

“We had just decided to hang up our boots to return the capital to our investors so that they can pursue a more appropriate strategy of the time,” he said. “It’s as simple as two veterans choosing a different path in life.” BLOOMBERG