No Time for Pity as Yong Rises to Top of Asia Hedge Funds
By Tomoko Yamazaki and Netty Ismail - Mar 28, 2012 2:08 AM ET
“My mother told me then, ‘Don’t let anyone look down on you just because your father died,’” he said in an interview in his office in Singapore, where he was born and raised. “Her words spurred me on and made me determined not to give anyone a reason to pity me for having lost my dad at a young age.”
Danny Yong, chief executive officer of Dymon Asia Capital (Singapore) Pte. Photographer: Munshi Ahmed/Bloomberg
Danny Yong, chief executive officer of Dymon Asia Capital, says the ability to understand China, the world’s fastest-growing major economy, is “crucial” as it has enabled Dymon to make the right bets on policy shifts months in advance. Photographer: Munshi Ahmed/Bloomberg
Yong, now 40, is the envy of Asia’s hedge-fund world, where he outperformed all managers last year. Photographer: Munshi Ahmed/Bloomberg
The next challenge for Yong, who learned to trade at firms including Goldman Sachs Group Inc. (GS) and Citadel LLC, is to avoid the investment slump and client defections that are common among Asian hedge funds that grow quickly after posting a year or two of strong returns. Instead, he seeks to emulate Jones, who has posted average gains of 20 percent a year since 1986.
“It has been our experience that undisciplined managers easily become victims of their own success,” said Peter Rup, chief investment officer of New York-based Artemis Wealth Advisors LLC, which invests in hedge funds for clients. “We have found that the sweet spot in size is in the range of $1 billion to $5 billion, with caps in place to limit fund size at those levels, irrespective of investor demand.”
Top Performer
The Dymon Asia Macro Fund -- which seeks to profit on macroeconomic trends by wagering on bonds, currencies, stocks and commodities -- has stopped taking new money to focus on its investments. The fund returned more than 20 percent after fees in 2011, the most in Asia and seventh worldwide among hedge funds with assets of more than $1 billion, according to data compiled by Bloomberg.Yong’s fund made money by short-term trading in the days following Japan’s March 11, 2011, earthquake, helping his fund gain 8 percent that month, Yong said. The fund covered its short positions on March 14, the first day of trading after the quake, and went long the Nikkei 225 index futures four days after the quake, he said. The benchmark Nikkei 225 Stock Average plunged 6.2 percent on March 14, 2011.
Long Yuan
Being long Chinese yuan for six months through August and turning long U.S. dollar and short equities in September as Greece’s debt problems deepened, also contributed. The MSCI World Index (MXWO) fell 8.9 percent in September. In a short sale, a manager borrows the security and sells it in the hope it can be bought back later at a cheaper price.Asia-focused hedge funds lost an average of 8.4 percent last year, according to Eurekahedge Pte. Global investors pulled $1.04 billion from the region’s hedge funds in the fourth quarter, the first net withdrawals since the first quarter of 2010, according to Chicago-based Hedge Fund Research Inc. Total estimated capital invested with Asian hedge funds was $82.1 billion at the end of 2011, Hedge Fund Research said.
“The number one challenge for us is to continue to demonstrate that on our larger asset base, we can still produce the same quality returns,” Yong said in his 16th-floor office overlooking the Fountain of Wealth in the Suntec City complex, one of the island’s business districts. “Hedge-fund investing is like a marathon. I intend to do this for at least the next 20 years.”
Military, University
Twenty years ago, Yong was serving his compulsory military service, becoming operations officer of the 24th Battalion of the Singapore Artillery. Back in civilian life, he went on to study as an undergraduate at Singapore’s Nanyang Technological University, getting first class honors in banking and finance.After a stint in the financial engineering department of a local bank, Yong took a job in 1997 at what is now JPMorgan Chase & Co. (JPM), where he was a trader on the Asian markets derivatives and fixed-income desk. It was here that he met his wife, Hsin-Li, a Cambridge graduate working in the economic research department. Today, she has left banking to look after their three children, ages eight, five and three.
A holiday to Hong Kong where he met up with a friend at Goldman Sachs turned into a job offer from the Wall Street firm. He moved on to Goldman’s derivatives trading desk in Hong Kong in February 2000, where he sat near Adam Levinson, who is now chief executive officer at Fortress Investment Group (Singapore) Pte, the local arm of the New York-based hedge fund and private- equity firm.
Goldman Days
“It was pretty intimate and there were significant risk- taking in the hands of select few individuals in every region,” Levinson said in an interview of the time he and Yong shared at Goldman Sachs. “That culture is what I remember -- that was an era where you were very professional about the way you approached markets and took risks.”Yong then spent 2 1/2 years with Goldman Sachs in Japan as head of trading for South Asian derivatives, fixed income and foreign exchange.
In November 2005, he joined Kenneth Griffin’s Citadel, where he set up and ran Asia currencies, interest rates, relative-value and macro trading.
Then, the next step toward independence: in February 2007, he became chief investment officer and a managing partner of Abax Global Capital Ltd., an asset manager part-owned by Morgan Stanley. (MS)
The Dymon Asian macro fund started trading in August 2008 with $113 million from Tudor as well as partners and employees. The next month, Lehman Brothers Holdings Inc. collapsed and the worst financial crisis since the Great Depression ensued.
‘Crazy’ Hours
The fund started accepting money from outside investors in August 2009, as he separated from Abax.Yong, now a fully fledged hedge-fund manager, slept in his office about 20 times a year in those early days running Dymon, he said in the interview. He had to reassure his mother he wasn’t “crazy” working such hours. Weekly jogs around Singapore’s MacRitchie Reservoir, where monkeys pester visitors, helped keep him fit, he said.
His fund returned 16.4 percent in 2009, trailing the average 26 percent gain of Asian hedge funds as equities strategies led gains amid a stock-market rally. The next year was much better as he returned 15.2 percent, beating the industry average increase of 8.5 percent.
Assets swelled to about $500 million in March 2011, doubled to more than $1 billion by mid-2011 and doubled again by February to $2.5 billion.
Demonstrated Success
In the midst of Dymon’s expansion, Yong’s friend and former colleague Levinson returned to Asia as a competitor.“We’ve demonstrated that you can do macro from Asia, which really hasn’t been done with a lot of success before,” said Levinson, who moved to Singapore from New York in January 2011 to lead Fortress’s Asia-specific macro-trading activities. “We operate in the same arena, but we do things differently enough by style so I don’t think about it as competition.”
Macro funds are rare in Asia, making up 5 percent of hedge funds in the fourth quarter, compared with 22 percent globally, according to Hedge Fund Research. Equity-focused hedge funds accounted for 76 percent of funds in Asia, compared with 46 percent in the global industry.
The region’s hedge fund industry has been more focused on equities because most managers that emerged from the Asian financial crisis, which followed the July 1997 devaluation of the Thai baht, came from investment firms that bet on rising stock prices, a strategy known as long-only.
The Fortress Asia Macro Fund (FORAMLP), which was started March 1, 2011, gained 3.6 percent in the 10 months ended Dec. 31, according to a Feb. 28 statement. Macro funds on average lost 1.2 percent last year, according to Singapore-based Eurekahedge.
Shallow Markets
Levinson says it’s tough to maintain performance along with the growth of the funds, a topic of conversations with Yong he’s had over the past six months. That challenge can be even greater for Asia-focused funds, where smaller and shallower markets can constrain managers’ ability to wager on their views, he said.“Three years from now, I think the markets will deepen and you can grow accordingly, but you don’t want to be bigger than the market would bear, otherwise you run the risk of performance degradation,” Levinson said. “That’s happened to some of the large funds here as well.”
Artradis, Sparx
Asia’s hedge-fund history is littered with firms that took off like Dymon, only to stumble. Artradis Fund Management Pte, which made $2.7 billion for investors as markets seesawed in 2007 and 2008, said in January last year it would close and return money in its AB2 Fund and Barracuda Fund. Artradis, based in Singapore, managed about $800 million as of Dec. 31, 2010, compared with almost $5 billion in 2008.Sparx Group Co. (8739) is a Tokyo-based hedge fund that was once Asia’s biggest. Its assets have dropped by almost 90 percent since a 2006 peak of 2 trillion yen ($24 billion) as performance dwindled.
“Many hedge funds grow well above their optimum size, which makes it much harder to generate strong returns,” said Don Steinbrugge, managing partner of Agecroft Partners LLC, a Richmond, Virginia-based firm that advises hedge funds and investors. “Many investors view size as a measure of quality which gives the largest hedge fund firms that are open to new investments a large fundraising advantage.”
Yong attributes much of his success to Paul Tudor Jones, who declined to comment for this article.
“We wouldn’t be here if it wasn’t for Tudor,” said Yong, who wore an open-necked blue shirt in the interview. “In my mind, Tudor is the best macro fund in the world. There’s a culture of fairness and excellence. These values emanate from Paul himself. It is good to see the good guys win.”
Keeping Score
Like Jones -- who runs the Robin Hood Foundation, a charity he started in 1988 with the goal of eradicating poverty in New York -- Yong plans to give away a significant portion of his wealth. He has set up the Yong Hon Kong Foundation, named after his father, that will help children from challenging family backgrounds and people who “fall through the cracks” of Singapore’s social safety nets.“Making money is just a means of keeping score, to know how well you are doing as a trader and investor,” said Yong, who has lost none of the competitive drive that saw him play badminton for Singapore as a student.
For now, Yong says his number one focus is performance. Dymon may seek more cash from investors next year if the fund continues to return the 15 percent to 20 percent that it targets, he said.
Feeling China’s Pulse
Currently, about 60 percent of its investors are from the U.S., 30 percent from Europe, and 10 percent stem from the Asian region. Most are large institutional investors such as sovereign wealth funds, pensions and global asset-management companies.Yong says the ability to understand China, the world’s fastest-growing major economy, is “crucial” as it has enabled Dymon to make the right bets on policy shifts months in advance. Dymon Managing Partner Keith Tan, who previously oversaw Standard Chartered Plc’s business in Shanghai, helps the team to “stay one step ahead” with access to executives at more than 300 small and medium-sized Chinese companies as well as government and central bank officials, said Yong.
“Chinese companies will have an idea of what they need to deliver over the coming three to six months based on their orders,” Tan said in the same interview. “By staying close to the pulse of the corporates, we get a better sense of what may happen two to three months down the road.”
Soft Landing
Dymon isn’t betting on major policy changes in China, although there is a chance for a small interest-rate cut mainly because of recent weakness in manufacturing data, Yong said.“We remain constructive on a China soft landing scenario because if China is faced with a hard landing, the policy response will be swift and effective,” he said.
Currently, Dymon Asia is mainly short Japanese yen and euro. The eurozone situation will get worse later in the year with Greek and French elections and a referendum in Ireland, while the Bank of Japan seems to be committed to a much larger monetization program and its fight against deflation, which could lead to further weakening in the yen, he said.
“We are in a nimble and opportunistic trading mode,” he said. “The long-term outcome is made up of snippets of short- term events. So given short-term events are evolving, we have to constantly refresh our long-term views and positions.”
His one enduring strategy: investors should seek scarce assets and not paper money “as the supply of fiat currency from global central banks can and will only rise,” he said.
Calm Analysis
Stephane Pizzo, founder of Singapore-based hedge-fund investing firm Lotus Peak Capital Pte, who advised some clients to put money into Dymon’s macro fund, says investors are drawn to the firm because there aren’t many macro funds in Asia.“Institutional investors are attracted to what Danny has built in terms of the whole trading team, the back office, compliance,” Pizzo said. “Danny is somebody who is always very calm. His reading of the market is quite good and he’s able to step back, not get excited, analyze the situation and draw the right conclusions.”
While Asia’s hedge-fund industry remains smaller compared with the U.S. and Europe, economic growth and rising affluence in the region will help the industry grow, Yong said.
“Given the regulatory and social changes in the West, Asia, and Singapore have the potential to develop itself into the hedge-fund center of the world,” he said.
CEO Hunt
The total number of Asian hedge funds increased to about 1,100 at the end of 2011, according to Hedge Fund Research. More managers are choosing to relocate to Asia amid increased regulatory oversight in the U.S., including the so-called Volcker rule to curtail banks from using their own capital to make wagers on stocks and bonds.Dymon is set to hire a chief executive officer and a president to oversee the business within the next three months, allowing Yong to focus on his role as chief investment officer, he said.
Yong, who doesn’t boast the elaborate hobbies or collections that occupy the time of some peers, said his life revolves around his work, his wife, and his three children.
“The day you feel like taking your foot off the pedal a little, you’d better pass the business to somebody else or give investors back their money,” said Yong, who still keeps a pillow in his office cupboard. “Otherwise it’s a recipe for disaster.”
To contact the reporters on this story: Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net; Netty Ismail in Singapore nismail3@bloomberg.net.
