Weekly Update

Investors shifting to private credit as bonds lose hedging appeal, says Bobby Jain

Bobby Jain, founder and CEO of New York-based hedge fund firm Jain Global has highlighted the growing competition hedge funds face from private credit firms for investor capital, according to reports. The former Millennium Co-CIO noted that investors who once relied on bonds to hedge against stock market volatility are now seeking alternative, “uncorrelated” asset classes, with private credit absorbing much of this demand.

Jain explained that the traditional 60/40 portfolio model, which allocates 40% to bonds, is becoming less effective. Historically, bonds have provided a hedge during equity market downturns. However, Jain remarked, “Now, buying bonds to hedge equities is not obvious anymore. The equity market could go down because the bond market goes down.

Jain Global is set to launch next month with at least $5 billion, having initially aimed to raise $10 billion. The firm expects to employ over 30 staff members in Asia, leveraging a management model that gives local leaders key responsibilities like hiring and risk management. UBS’s Global Family Office report, released in May, indicated that only 23% of family offices plan to increase their allocations to hedge funds, with almost half maintaining current levels and 12% expecting a decrease. Preqin’s latest private markets outlook predicts that the private credit market will nearly double to reach $2.8 trillion by the end of 2028.

Asia hedge funds outpace global peers on China bets, UBS says

Asian hedge funds led global gains in May and the first five months of the year, benefiting from bullish sentiment towards regional equities and successful positions in China. According to a Reuters report, Asia focused long/short funds across all strategies rose an average of 2.8% in May and 7.5% from January to May, outperforming funds primarily investing in the United States or Europe. In contrast, U.S. and Europe focused hedge funds each saw average gains of 1% in May and 6% over the first five months of the year. The surge in artificial intelligence (AI) stocks and a rebound in Chinese markets drove the MSCI Asia ex-Japan index (.MIAPJ0000PUS) up 8% this year, reaching its highest level since April 2022. Meanwhile, Japan's Nikkei (.N225) climbed 15% this year, supported by economic recovery and corporate reforms.

UBS noted that the gains in Asian hedge funds during May were "largely driven by China-focused funds," while the performance of Japan-focused funds was mixed. Greenwoods Asset Management, one of Asia's largest hedge funds, saw its flagship fund, Golden China, rise 18.3% for the year through May and 7% in May alone, mainly due to contributions from China tech and energy stocks. Pinpoint Asset Management's China fund jumped 11.4% in the first five months, according to an HSBC note. MSCI China stocks (.dMICN00000PUS) are up 23% from their January low, though they have given up some gains in recent weeks due to weakening economic data. By strategy within Asia, equity funds that bet on stock prices rising or falling gained more than 3% last month, while quantitative and multi-strategy funds returned 2.5% and 1.3%, respectively, according to UBS, which tracked 61 Asian hedge funds.

CPPIB, Temasek join Blackstone in backing Singapore hedge fund Arrowpoint

Arrowpoint Investment Partners, one of Asia's largest hedge fund launches this year, announced on Friday that it has secured investments from the Canada Pension Plan Investment Board (CPPIB) and a unit of Singapore’s Temasek Holdings. These sovereign wealth funds join Blackstone, which had already provided seed capital for the Singapore-based fund. Bloomberg reported that Seviora Capital, a unit of Temasek, was among the initial investors. Arrowpoint was founded by Jonathan Xiong, former Asia co-CEO of Millennium Management, who left the firm last September.

The fund, set to start trading in July with over 15 portfolio managers, has also hired staff in Hong Kong. Reuters reported in February that the fund had raised about $1 billion. Arrowpoint did not respond to a request for comment. Multi-manager, multi-strategy funds are increasingly popular due to their low volatility and risk diversification. The launch of Arrowpoint is expected to intensify competition for talent in the region, challenging established hedge funds such as Polymer Capital Management and Dymon Asia Capital.