The quality of Australian intellectual capital is very high, and is much valued both in industry and academic circles, particularly in the areas of finance and accounting. Australians are in high demand both on Wall Street and as PhD students in top US academic institutions.” Stephen Brown, David S Loeb Professor of Finance, NYU, in “2020 Vision”
Stephen Brown is renowned world wide for his work on hedge fund risk management and fee structures. Surprisingly enough, his humble beginnings started at Melbourne High School and Monash University before he obtained his PhD in Chicago. Still think he was lucky? Consider the following examples of exceptional Australian skill in the hedge fund industry, or what academic literature would define as anomalies, especially given the relatively small size of our population:
• We were the first. We can proudly say that hedge funds are “Australian made”, although as some Australian observers wryly note: “when Melbourne born Alfred Winslow Jones moved to the US and started the first hedge fund in 1949, he would have had no idea of the monster he was creating.”
• We are the biggest. The largest hedge fund in Asia is run out of Australia. Australia has emerged as a key centre for hedge funds in the Asia-Pacific region, overtaking Singapore, Hong Kong and Tokyo as the preferred base for hedge fund firms.
• But size is not all that matters. In 2005 Australian hedge funds scooped up 6 out of 11 AsiaHedge awards. In 2007 Macquarie won the prestigious “best hedge fund manager for Asia including Japan” award from AsiaHedge.
• Cheap as chips. The start up and running cost are among the cheapest in the region, about 50% below those in Tokyo. 5 Add to this the regulatory regime, the available service providers, the quality of life, and AS$1.3 trillion in superannuation assets and it’s easy to see why over 80 hedge fund firms call Australia home.
• Finally, the proof is in the billionaire pudding. Australia, as Asia’s largest centre for hedge fund is ranked as the country with the third most hedge fund member firms in the Billion Dollar Club (8) after the US (246) and UK (79).
Thus, on any of the traditional criteria of being the first, the largest, the most skilful, the cheapest or the most innovative, Australia scores well. Australia has managed to beat the odds where it matters most through constant innovation. And it is not just in the area of hedge funds, but alternative investments in general that Australian institutions and investment banks are leading in innovation.
So is Australia just a lucky country? Think again. Perhaps it is the combination of entrepreneurial spirit, risk taking, perseverance (the “battler” spirit) and cultural diversity that make Australia a unique place for hedge fund investing. Whether you need a book smart or street smart hedge fund manager, or even a mandarin-speaking Prime Minister for the new millennium, Australia has it all.