"If you're investing in [Asian assets] you've got to be careful about the people,'' said David Walter, director of Singapore-based fund of hedge funds KBC Alpha Asset Management.

The issue is by no means limited to managers in Asia, but also affects the global funds that buy and sell Asian stocks and bonds from hedge fund capitals such as London, Switzerland and New York.

Asian assets under hedge fund management grew to US$60 billion (HK$468 billion) last year from US$40 billion in 2003, according to Eurekahedge, a Singapore-based alternative investment research consultancy. That is expected to jump to more than US$80 billion by the end of this year.

The number of new managers holding Asian assets is also on the rise, according to Eurekahedge.

The Asian asset market is expected to bring in close to 120 new hedge fund managers this year, considerably more than the mere five that joined the industry in 1995.

Asia's underdeveloped equity and debt capital markets, which are outperforming Europe and the United States on strong regional economic growth, have attracted more and more large institutional investors that are becoming more comfortable investing in hedge funds, which are regarded as adept at squeezing profit out of more volatile, but higher yielding, emerging markets.

Calpers, a major US pension fund, said recently that it plans to double its investment in hedge funds to US$2 billion.

But the increased competition among hedge funds for this new money is pushing managers deeper into riskier trades. That is coupled with the growing number of neophyte fund managers who think they know what they are doing.

So-called hot money from investors betting on such chancy propositions as a revaluation of the yuan has also added pressure on funds to perform.

Even seemingly highly qualified managers can still wind up holding huge losses.

Long Term Capital, the poster child for what can and does go wrong in the industry, was run by two Nobel Prize winners and a well-respected economist and still managed to sink under titanic losses derived from the Russian government debt default in 1998.

The trouble that hedge funds can find themselves in was exemplified two weeks ago with the credit downgrade of General Motors and Ford by international ratings agencies.

That caused the price of credit default swaps - instruments sold as insurance against bond defaults and a key hedge fund investment - to shoot up and stay there, leaving hedge funds few chances to escape unscathed.

``We're trying to get hurt as little as possible,'' said Chong Sze King, a trader at Singapore-based hedge fund Asia Genesis Asset Management, who has dumped funds into safer but lower-yielding cash for the time being.

Just how hard the industry was hit will be seen next month when investors can next opt to pull money out of funds.

Top-quality management plays a definite role in a fund's success because more than half of all fund failures over the past two decades have been caused by operational risk such as a lack of adequate controls or lack of experience. Another 38 percent stem come from investment risk, according to research by Capco, a financial services consultancy.

That means people, not markets, bring down most hedge funds.

Part of the problem is that monitoring cost is just too expensive, up to US$200,000 a month depending on the investment strategy a fund employs, to keep up the internal controls necessary to keep managers from straying into the riskiest areas - or outright fraud.

Funds are notoriously lean when it comes to costs because they see every dollar not spent on maximizing returns taking away from them.

But for those able to find a way to manage it right, Asia is where it's at, market players say.

``In Asia, it's all about controlling your losses because the money will come by itself,'' said Jerry Wang, chief executive of Vision Investment Managment, a fund of funds based in Hong Kong.tim.leemaster@singtaonewscorp.com