Hedge Funds Invest Record Amounts In EM In First Quarter

Jun 3 2011 | 9:59am ET

Hedge funds are embracing emerging markets like never before, according to the latest information from Chicago-based data provider Hedge Fund Research.

Hedge fund capital in emerging markets topped $121 billion in Q1 2011, beating the previous record of $117 billion set in 2007, reports HFR.  The total represented growth of 6.5% over the previous quarters and reflected increased investor interest in Emerging Asia and Russia.

New capital, concentrated primarily in Emerging Asia, totaled almost $2.3 billion in the first quarter, while performance-based gains totaled $5.1 billion and were concentrated chiefly in Russia and Multi-EM regions.

The HFRI Emerging Markets (Total) Index posted a narrow gain of 0.96% for Q1 2011 and added 1.83% in April to bring 2011 YTD performance to 2.80%, reports HFR, “effectively navigating early year inflation-sensitive declines through Emerging Asian economies, as well as social and political unrest across Middle East economies."

Russian and Eastern European funds continued to lead EM hedge funds. The HFRI Russia/Eastern Europe Index gained 8.22% YTD through April. Middle East-focused funds turned in the weakest performance, with the HFRX MENA Index declining 4.34% in the first quarter, although it gained 1.4% in April, narrowing the YTD loss.

Capital invested in Latin American hedge funds rose 15% in Q1 2011, the largest increase of any EM region. But Emerging Asia still leads the pack in terms of concentration of EM hedge funds, with nearly 500. The HFRX Asia ex-Japan Index gained 2.81% in April, offsetting early-year weakness for a positive YTD performance.

“The record level of assets invested in emerging market hedge funds represents the latest evidence that global investors continue to exhibit a preference for accessing specialized emerging markets exposure via hedge funds,” said Kenneth J. Heinz, president of HFR. “As a direct result of the strategic specialization, sophistication and improved structure of emerging market hedge funds, the number of funds located in Brazil, China, Russia, Singapore and UAE all continue to grow, and we expect this trend to continue in 2011 and in coming years.”

Acknowledging the growing importance of the Asian hedge fund industry, HFR will open an Asian office this year. It will be located in China and managed by Josh Gu, director of quantitative research and Asian distribution.


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