More PE & Hedge Funds To Scale Back in Asia

HONG KONG (Reuters) – More hedge funds and private equity firms are likely to trim or shut their Asian operations as the widening financial crisis forces a retreat to core Western markets, two industry experts said on Tuesday.

Both hedge funds and private equity firms rushed into Asia in recent years to cash in on the region’s booming economies and surging stock markets. But the global financial crisis has sapped demand for deals and appetite for risk.

Exposure to toxic assets has also sparked massive losses at hedge funds, forcing some to shut down for good.

While hedge funds have been hit harder so far, more private equity firms are also going to feel the squeeze, said Laure Wang, co-founder and managing director of Asia Alternatives, a private fund of funds.

“The PE (private equity) side has definitely been slower. I definitely think it’s going to happen more,” Wang told the Reuters Private Equity and Hedge Funds Summit in Hong Kong.

Hedge funds have been swamped by a wave of redemption orders, while less-liquid private equity funds typically require 10-year commitments from their investors.

“This is just the beginning,” Wang said, adding that many firms could end up with a “token presence” in the region.

The Carlyle Group CYL.UL last year shut down its Asia leverage finance group, which had been set up in 2007 as the region’s first dedicated leverage team among private equity funds.

Blackstone Group’s (BX.N: Quote, Profile, Research, Stock Buzz) $25 billion credit hedge fund, GSO Capital Partners LP, shut its Asia investment desk after failing to find attractive investments in the region, sources told Reuters earlier this year.

“Asia became very stylish and I’d say even fashionable starting in 2005,” Timothee Bousser, managing director at Societe Generale in Hong Kong, told the Reuters Summit.

“Today we are suffering from this excess.”

Late last year, UK-based private equity firm 3i Group Plc (III.L: Quote, Profile, Research, Stock Buzz) said it was shutting offices in Hong Kong and Shanghai and moving its China dealmakers to Beijing to save money and focus more on mainland Chinese deals.

Also in December, U.S. hedge fund giant Citadel Investment Group LLC said it would close its Tokyo office and its Asia principal investment operations by the end of 2008.

(Reporting by David Dolan; Editing by Anshuman Daga)