Hong Kong Jockey Club Starts Direct Hedge Fund Allocations

Apr 04, 2014 12:42 am ET

(Updates with comment from adviser in fifth paragraph.)

April 4 (Bloomberg) -- Hong Kong Jockey Club began making direct allocations to hedge funds, said Jacob Tsang, director of group treasury at the city’s only horse-racing operator, which has invested more than $1 billion in alternative assets.

It made its first two such allocations to Och-Ziff Capital Management Group LLC and Millennium Management LLC recently, he said. In addition to controlling horse-racing in the city, the club operates authorized betting on football games and lotteries, according to its website.

“It is the first time the club goes direct and there is room to add more direct managers in the future,” Tsang said in an e-mail response to Bloomberg News questions. “This move signifies a shift in paradigm as the club moved forward to a more efficient way to deploy capital.”

The club is joining a growing rank of institutions that have directly allocated capital to hedge funds in recent years, bypassing funds of funds and the extra fees they charge to make such investments on their behalf. Two-thirds of institutions in a Deutsche Bank AG survey released in February invest directly with hedge funds without funds of funds, contributing to the concentration of assets in the largest managers.

Maturing Market

“The Hong Kong Jockey Club is a bellwether institutional investor in this region,” said Daniel Celeghin, Asia head at Casey Quirk & Associates LLC, a Darien, Connecticut-based adviser to asset managers including hedge funds. “The fact that they are making direct allocations to hedge funds is a clear indication of the maturation of hedge funds as a mainstream investment in the Asia-Pacific region.”

Hedge Fund Intelligence, a London-based trade journal, reported the two direct allocations earlier.

Millennium, the New York-based hedge fund manager run by Israel Englander, had $21.8 billion of assets under management by February and offices in the U.S., Europe and Asia, according to its website. Och-Ziff, the New York-based firm led by Daniel Och, oversaw $42.7 billion of assets on April 1, it said in a regulatory filing.

“Multi-strategy funds have the advantage of being more nimble to deploy capital and there is no extra layer of fees,” Tsang said in the e-mail.

The club’s own investment team carried out the due diligence and picked the two managers without engaging an outside consultant, Tsang said. The club had invested in one of the managers through funds of funds before, he said, without identifying it.

The club had almost HK$9.5 billion ($1.2 billion) of alternative investments at the end of June 2013, including those held by its retirement fund and charities trust, according to an annual report.

The club’s alternative investments include hedge funds, private equity and private real estate funds, according to its annual report.