Liquidnet is planning to further develop its client business in Asia during the next 12 months by targeting locally-based and regionally-focused asset managers.
“Asian-based hedge funds haven’t yet been a great area of penetration for us,” said Lee Porter, head of Liquidnet Asia Pacific. “Some of them are nevertheless big and often have good contra-flows, as well as trading a lot of mid and small caps. Hedge funds turn over their portfolio with more velocity than long-only funds, and need to use more tools than just their favourite sales trader. Implementation of decisions by a local hedge fund is usually much quicker than in a big multinational, where their trader might physically sit in another continent.”
In 2013, Liquidnet volumes were up 20% year-on-year, with records chalked up in nine Asian markets. That momentum has followed through to the beginning of this year, with the highest monthly volumes ever transacted in Japan recorded during January 2014.
As Liquidnet’s geographical spread already covers most of Asia, its plans for this year centre on organic growth. Other regions offer a host of products that Liquidnet Asia does not yet have. Porter is looking at Liquidnet products in the USA and Europe and seeing which ones would be beneficial in Asia, given the evolution of local markets. Throughout the year he will be looking to layer in products from elsewhere, such as algorithms. However the firm is not going to do anything until they are ready from a control standpoint and the regulators are comfortable with what they are planning.
“We have good penetration of the big international asset managers, because they are familiar with Liquidnet in Europe and in the States,” said Porter. “We’re also strong with bigger Australian managers. We don’t have such great penetration with Asian domestic customers. Our product is still relatively new for Hong Kong-based and Asia-focused managers. We have been bringing on Japanese domestic funds and have had some success, but it’s taken a while.”
Asia accounts for several records for Liquidnet. The biggest trade that the firm has ever transacted was done in Korea in 2013, involving $108 million in one execution. A US$150 million trade in three tranches was also completed in Hong Kong. In Indonesia, a Liquidnet trade was undertaken that, whilst not large in terms of notional value, accounted for 450 days of average trade volume.
Liquidnet now has an array of data now about the outcomes it can achieve locally, information that it did not have in 2007 when the firm first expanded into Asia. This will help in its moves to broaden its local client lists.
“Long only funds in Asia might not be using dark pools or alternative venues at all,” said Porter. “They can be very traditional and the ways in which they trade means they might not be as far up the curve as the big institutional guy. So it might take us longer. There is still plenty to do there.”