Small Asia hedge start-ups squeezed out

By Jeffrey Hodgson and Saeed Azhar

HONG KONG/SINGAPORE (Reuters) - Start-ups of small hedge fund managers are on the wane in Asia, hurt by rising costs, competition from big global players and increasingly demanding institutional investors.

Analysts and industry watchers said the trend was toward bigger, more sophisticated start-ups with strong backing, which can afford to invest in increasingly complex back office, risk management and compliance systems.

"It has become noticeably much more difficult to get started and to get the asset growth going for small independent managers," said Peter Douglas, head of Singapore-based financial advisor GFIA, which provides hedge fund research.

"Money coming into hedge funds globally is more and more institutional and coming from bigger investors that are used to allocating to big organizations. Therefore, the operational infrastructure you need to get started is much more substantial."

Research firm and consultancy Eurekahedge said the number of hedge fund start-ups in its database fell to 166 last year in Asia from 245 in 2005 and 199 in 2004.

Rival research firm AsiaHedge, a HedgeFund Intelligence publication and database provider, said the number of actual hedge funds launched declined to 122 last year from 126 in 2005.

Both firms said year-on-year numbers were likely to eventually be similar as additional 2006 start-ups were uncovered.

Analysts said there was anecdotal evidence that fewer small independent players are entering the industry, which is concerning because such managers are often the backbone of industry development.  Continued...