With banks now adapting to a fresh host of regulatory rules, from new capital requirements to tightened scrutiny over derivatives, the Asian hedge-fund industry’s fortunes seem unlikely to turn soon. Hedge funds in Asia used to rely heavily on wealthy investors making investments through funds of funds, financed partly through bank borrowing, the CFA Institute’s Smith said. That lending has dried up.
“Banks will remain reluctant providers of leveraged finance for the foreseeable future,” said Smith, who came to Hong Kong in 1996 as Asia head of Bank of Bermuda’s fund services business. He rose within HSBC Holdings Plc’s fund services after it acquired the former and stayed until 2006, after which he went to head Hong Kong-based Triple A Partners Ltd. Smith took up his role at CFA Institute in October.
“Given the quantity and scope of the new regulation that already faces banks, plus the additional uncertainty over any new regulation that may be being planned,” Smith said, “it’s difficult to see how banks will be able to stabilize their business models in the near future.”