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SHUHEI ABE HAS HIS SIGHTS SET ON ASIA. THE founder and CEO of Sparx Group Co., Japan’s largest hedge fund firm, has traditionally focused on his domestic market, but the downturn in Japanese stocks over the past year has hit the company’s portfolios hard. Sparx’s assets dropped a steep 25 percent last year, to less than ¥498 billion ($6.5 billion) by the end of December.

Abe believes diversification is the remedy to Sparx’s problems. He is recasting the firm as a pan-Asian fund manager. To that end, he dispatched the company’s chief operating officer, Masaki Taniguchi, to Hong Kong last June to expand the group’s office there and spearhead the search for investment opportunities — and investors — across Asia. “We have been realigning our firm to pursue our business on the premise that Asia, including Japan, is one seamless economic region,” says Taniguchi. “The additional allocation of management resources to Hong Kong demonstrates our strategic commitment to the region.”
Sparx is far from alone. These days fund managers are flocking to Hong Kong or expanding their operations there. The city’s deep capital markets, abundant talent and friendly regulatory environment are luring institutional investors and alternative fund managers alike. Hong Kong’s easy access to the big Chinese market next door adds to the attraction, especially with authorities in Beijing moving to develop an offshore market in renminbi in the former British colony. As a result, this longtime banking and commercial hub can now boast of being a leading asset management center.

The number of money management firms in the city had risen to 798 at the end of 2010 from 580 three years earlier. Total assets increased more modestly, to HK$10 trillion ($1.3 trillion) from HK$9.6 trillion, but that occurred against a backdrop of weak markets that saw the MSCI Asia APEX 50 Index drop more than 11 percent during that period. The industry’s growth put Hong Kong well above rival Singapore and made the city the largest fund management center in Asia outside of Japan.

“We see more and more global asset management firms setting up office in Hong Kong,” says Jimmy Chan, CEO of Hong Kong–based Value Partners, Asia’s largest hedge fund, with $7.1 billion in assets under management. “Hong Kong is an international financial center with a well-established regulatory system and trading infrastructure.”