Asian hedge funds may have lost up to two-thirds of their year-to-date gains in May alone, with strategies such as macro and CTA, which bet on long-running market trends, hit hardest, said Matt Pecot, head of Credit Suisse's prime broking unit in Asia-Pacific.
"It's quite painful, especially through mid-May and then it got a little bit better, but still you are probably looking at people giving up two-thirds to a half of their year-to-date performance," said Pecot in an interview.
"Part of that was driven by a desire to try and protect returns. Part of it was driven by concerns around Europe and the Greek crisis. Part of it was driven by uncertainties around QE2 ending."
Pecot, who joined Credit Suisse in 2009 from UBS, said such factors led to a lack of clear direction in market for many Asian managers.
The June-to-August period was also looking slow as they still try to come to grips with the QE2 ending, he said.
"Very similar to last year, I think funds are going to need to re-risk during the second half of the year in order to try to improve their performance," he added.
Hedge funds in Asia lost in the first two months of 2011 but gains in the next two months helped them return about 2 percent up to April as measured by Eurekahedge Asia Index.
The funds' exact losses or gains will be known towards the middle of the month.
SMALL FUNDS & PRIME BROKING BUSINESS
Prime brokers provide services such as clearing trades and lending money to hedge funds.
The unit of Credit Suisse is ranked No.3 in the region by AsiaHedge with assets of $18.6 billion.
The firm aimed to grow assets under management at "1,000 basis points above the industry's growth rate", Pecot said, taking it closer to industry leaders Goldman Sachs Group Inc and Morgan Stanley, which were ranked the top-2 prime brokers in the region by AsiaHedge last month.
Credit Suisse, which primarily focuses on bigger hedge funds or those with potential to turn big, said most of the managers in Asia were small and "will have to go away".
Roughly half of the Asian hedge funds manage $50 million or less which makes it difficult for them to run an institutional quality infrastructure and operations mechanism demanded by investors following the financial crisis.
"I think most of these managers will end up leaving the industry or shifting into more family office-style vehicles for friends and family money," he said, adding a smaller hedge funds industry in terms of number of funds is better.
However, this will potentially expose Credit Suisse to more competition, given it's focus on relatively bigger players.
The prime broker's assets per mandate is the highest among major players in the region, according to AsiaHedge survey.
Pecot declined to identify his clients but industry sources said Credit Suisse services global heavy-weights such as Och-Ziff, Highbridge and Fortress, and Senrigan, Turiya, and Broad Peak in the Asia Pacific region.
Pecot acknowledged competition but said that for the first time among any bank in Asia Pacific, Credit Suisse's equities franchise is among the top three players across cash equities, derivatives and prime services.
"I think the combination of these strengths is pretty powerful," he added.