HONG KONG: Hedge funds paid more brokerage commissions in Asia last year as the region’s rising stock prices boosted trading, according to a study by Greenwich Associates.
Hedge funds accounted for 22% of commissions paid for trading equities in Asia excluding Japan, up from less than 5% in 2004, the study found. Total commissions rose to $1.2 billion (Rs5,313 crore) last year from $766 million in 2004.
Hedge funds are switching attention to Asia, generating more profits for investment banks such as Goldman Sachs Group Inc. and Morgan Stanley as the region’s stock markets rally. Hong Kong’s benchmark Hang Seng Index surged 39% last year, while the Straits Times Index in Singapore jumped 32%.
“Hedge funds are staffing up in Asia, and in many cases they are transplanting traders from New York or London to Hong Kong or Singapore,” Greenwich’s Karan Sampson said in the report.
Prime brokerage, which involves processing trades and lending hedge funds money and securities, has become one of the investment banking industry’s most profitable businesses.
Morgan Stanley said its revenue from equity sales and trading climbed 32% to $6.3 billion in the year ended 30 November, fueled by a third year of record results in prime brokerage.
Bear Stearns Cos. generates at least 30% of its profit catering to hedge funds, according to estimates by Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York.
Greenwich questioned 176 portfolio managers and 62 traders in Asia excluding Japan for its study. The investors said they expect Singapore and Hong Kong equities to return 22% this year, with China returning 19% and India, 18%.
Hedge funds, loosely regulated pools of capital that allow managers to partake in gains, account for as much as 30% of stock commissions paid in the US, according to Greenwich’s report in July. The Greenwich, Connecticut-based company provides consulting services to investors and brokers.
At the end of last year, about 782 hedge funds were invested in Asia excluding Japan, managing $101 billion of assets, according to Eurekahedge, a Singapore-based company that tracks the industry.