Hani Abuali Deal Was A Blueprint For Asian Hedge Fund Team

Online, December 2, 2010 (Newswire.com) - York Capital Management LLC., which manages $13 billion, may double its staff in Asia as the market for funds trading securities affected by corporate changes such as mergers, reorganization and spinoffs in the region is set to eclipse its European peer in the coming decade.

The New York-based hedge fund company founded by Jamie Dinan may expand its now seven-people Hong Kong office to the size of its London counterpart over the next two years, said Christophe Aurand, chief investment officer of York's international operations, including Europe and Asia. York's European business employs about 15 people.

"There's no doubt that five, 10 years from now, the investible market in Asia will be bigger than the investible market in Europe," said London-based Aurand during a visit to Hong Kong yesterday. "You don't see the mega-deals that you see in the U.S., but you do see a lot of deal activity."

Public listings, capital increases and the expansion of free-floating stocks of government-controlled companies will add to the growth of Asia's market capitalization and liquidity, said Aurand. Deal flows will pick up as company executives pursue acquisitions to expand market share in the wake of the financial crisis, he added.

The withdrawal of investment banks' property trading desks and some global multistrategy hedge funds during the global financial crisis have reduced competition, making trades more profitable, he said.

Less Capital

"More so in Asia than anywhere else, there's much less capital looking at these deals today," Aurand said "If you look at who the large players in arbitrage were, two-thirds of them have all but disappeared."

London-based Polygon Investment Partners LLP and Minneapolis, Minnesota-based Deephaven Capital Management LLC were among global funds that shut their Hong Kong offices last year, according to regulatory records.

Event-driven funds drew more than half of capital investors added to the global hedge fund industry in the fourth quarter, according to a January statement from Chicago-based data provider Hedge Fund Research Inc. Forty-two percent of investors in a Deutsche Bank AG survey in January said they would add investments in such funds, quadrupling the percentage a year ago.

Nick Taylor, a former executive of Citadel Investment Group LLC, last year drew $150 million backing from Blackstone Group LP for a $208 million Asian event fund, three people told Bloomberg then. Sanjiv Bhatia, who led Deephaven's Asia investments, and an ex-Polygon team led by Anthony Correa and Hani Abuali, also started similar funds.

Asia Complexity

Deals tend to be more complex in Asia and Europe than in the U.S., where they follow the same set of rules and processes well understood by investors, Aurand said. In Asia and Europe, more regulators, politicians, family and power groups influence deal outcomes, Aurand said.

"That makes for more complexity and it sometimes means events unfold in slower fashion," Aurand said. "The U.S. provides the highest predictability, by far the highest liquidity but also the most competitive market because there're a lot of people doing that with a lot of money and they all understand very well the rules."

York manages $210 million in the York Asian Opportunities Fund and allocates money to the region from its global funds.

The Asian Opportunities fund returned an annualized 13 percent from its inception in April 2006 to February, compared with a 0.33 percent loss for the MSCI Asia-Pacific Index in the same period. The fund booked its only annual loss in 2008 when its net asset value dropped 29 percent, according to a document given to investors.

Brooke Parish, York's New York-based senior managing director in charge of investor relations, declined to comment on fund details, citing regulatory restrictions.

Japan

About 23 percent of the fund's net exposure, the difference between its long and short investments, was in Japan, the document said.

"Japan is not about growth," said Aurand. "It's one of those great markets that combine liquidity and yet inefficiencies."

Managers can gain a competitive advantage in the country by understanding Japan's unique rules, different management culture and being able to bridge the language barrier, he added.

York was founded by ex-Donaldson, Lufkin & Jenrette Inc. banker Dinan in 1991. York Capital Management LP, its oldest fund, has returned an annualized 16 percent after fees since it was set up in 1991, according to the document.