Jun 20, 2024

Former Millennium Management Asia executive Jonathan Xiong’s new hedge fund pod-shop has signed up Canada Pension Plan Investment Board (CPPIB) and a unit of Singapore’s Temasek Holdings Pte. as additional backers, according to people familiar with the matter.

Canada’s largest pension plan and Seviora Capital Pte, a wholly-owned unit of the Singapore state-owned investor, will join Blackstone Inc. as anchor investors for Arrowpoint Investment Partners’s fund, said the people, who requested not to be named because the matter is private. 

Arrowpoint aims to start trading on July 1 and deploy more than US$1 billion within two months, said one of the people. That makes it one of the largest Asia hedge fund startups in history based on assets amassed at inception. Representatives from Arrowpoint, CPPIB and Temasek’s Seviora declined to comment. 

Hedge fund pod-shops have been gaining popularity in recent years while the rest of the global industry stagnated. Combined assets of 55 of these firms globally nearly tripled in the six years through 2023, according to a September report by Goldman Sachs Group Inc.’s prime brokerage team. Investors have been looking for one-stop shops to gain access to a variety of investment strategies in a growingly volatile market environment.

More of them are spreading their wings in Asia. Still, the regional space is dominated by large global players such as Millennium, Point72 Asset Management LP and Balyasny Asset Management LP, for whom Asia represents a smaller market. Arrowpoint marks a rare new entrant dedicated to the region with locally-based decision-makers. Xiong is a former Asia co-chief executive officer of Millennium. 

The people declined to specify the amount of capital the three anchor investors are contributing and other terms of their investments. Strategic backers are usually willing to commit money for longer periods, often in exchange for a share of the fee revenue. CPPIB is investing in Arrowpoint through its so-called “emerging managers program,” which has provided $6 billion of capital to fledgling hedge fund firms since 2016, including Hong Kong-based Ovata Capital Management Ltd.

Arrowpoint will begin trading with more than 50 employees in Singapore and Hong Kong combined. More than half of them will be investment and trading staff, said the person. It is looking to nearly double the total number of people hired by year-end to as many as 100, though some of them may not start until next year.

July will see about 12 of its investment teams start trading. The rest of the 18 teams that the firm has signed up will join at later dates due to non-compete agreements with their prior employers, said the person. 

Further expansion is already in the plans. By January, Arrowpoint will move into a new Singapore office that can seat 100 people. Apart from investment staff, the city-state will house the bulk of its technology, middle- and back-office support employees.

Most of the investment strategies Arrowpoint intends to employ will be in place by Sept. 1, the person said.

They include:

  • Equity long-short: wagering on rising and falling stocks
  • Commodities, including base metals and energy trading
  • Fixed income and macro that seek to profit from broad themes in various asset classes, ranging from equities, to fixed income, commodities and currencies
  • Interest rate volatility trading
  • Event-driven, such as arbitrage trades around mergers and acquisitions
  • Share class arbitrage between different classes of shares issued by the same companies
  • Statistical arbitrage, a systematic equity approach trying to profit from shifts in the pricing gaps between two or more securities
  • Dispersion trading: buying single stock options while selling index options, exploiting the fact that the gaps between implied and realized volatility tend to be greater between index options than between single stock options.

Arrowpoint is not the only new entrant to the Asia pod-shop space. Bobby Jain’s Jain Global LLC is also slated to begin trading in July with at least $5 billion. Unlike peers such as Millennium and Point72 that expanded to Asia years after founding, Jain Global is making Asia one of its seven core businesses at inception, starting with more than 10 portfolio managers in the region, Bloomberg News reported earlier this month.

Other regional hedge fund pod-shops of size include Dymon Asia Capital and Polymer Capital Management, the $4.3 billion firm led by a former Asia head of Point72 and majority owned by PAG.

Pod-shops allocate capital among teams of investors and typically pass on certain expenses to their clients in an arrangement known as “pass-through.” They have been locked in intensifying competition for talent and have been under pressure to produce returns to justify their higher fees as risk-free interest rates have risen.