ING Barings is preparing to launch a prime brokerage desk in Hong Kong to snare business in the nascent hedge fund market in Asia. The firm is considering pulling out of the U.S. domestic prime brokerage market, but this is unrelated to the decision to set up shop in Asia, according to Martin Keller, managing director in charge of international prime brokerage in London. "This is a prerequisite to pitch for new business in Asia."
Keller continued, "It is like the chicken and the egg. If you dare to have the services ready before the clients you will go a long way." He thinks ING Barings can make a success of the move because the firm has a strong franchise in Asia.
The bank already has three traders in Hong Kong and three in Tokyo who trade over-the-counter derivatives, such as total return swaps and contracts for differences, on behalf of hedge funds. But the bank does not have relationship managers to bring more business on board and offer services such as risk reporting. Keller plans to hire a couple of relationship managers to set the desk up and then build it up to five when it is operational. The prime brokerage office will be based in Hong Kong because the bank has clearing facilities there.
Hisae Sato, consultant at Watson Wyatt in Tokyo, thinks the largest and most sophisticated pension funds will increase their allocation to alternative investments to 10% in the next couple of years from less than 1% today. At the moment hedge funds conjure up images of the Long Term Capital Management disaster, but Sato said this will change as investors learn more about the benefits of having diverse and low correlated assets. Keller said the hedge funds already active in Asia are predominately convertible arbitrage and merger arbitrage funds.