Hong Kong Hedge Fund’s Assets Evaporate Amidst Redemptions

Apr 30 2010 | 12:40pm ET

One Hong Kong fund of hedge funds shop is learning to make do with much, much less. DragonBack Capital has seen its assets under management plummet by more than 90% over the past 19 months as investors flee funds of funds.

The asset crunch—DragonBack is down to just US$45 million from US$316 million a year ago and nearly US$600 million at its peak in October 2008—has the firm in something of a vicious cycle. Returns have suffered since the redemption cycle began, despite the fact that DragonBack’s multi-strategy fund posted gains in 2008, when most funds suffered double-digit losses.

“The assets decline has been detrimental to portfolio build-out, which is why in recent times our returns have been conservative,” CEO Robert Lance told Reuters.

The multi-strategy fund lost 5.84% last year and is down 3.52% this year, while DragonBack’s VolAsia fund rose 4.92% last year and is up 0.5% this year. The average hedge fund enjoyed double-digit returns last year and is up about 3% this year.

The three-year-old firm has not imposed any redemption restrictions, Lance said, and has laid off two staff members. It is also working to rebuild its assets by appealing to its partners, friends and family.

“The AUM gods giveth and they taketh away,” Lance said. “You have to stay philosophical and practical about these things.”

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