Emerging markets hedge funds bounced back in January 2012, with the HFRI Emerging Markets (Total) index gaining 4.4%.
The numbers are encouraging for EM funds, which ended 2011 in the red, posting an average decline of 13.8%, according to Hedge Fund Research.
Latin America funds gained 6.0% in January, after shedding 10.4% in 2011. Russian/Eastern European funds gained 5.9% to start the year, having lost 18.5% in 2011.
MENA funds gained 3.4% in January, after their 2011 decline of 11.7% and Asia ex-Japan funds gained 4.0%, having ended last year down 18.0%.
Asset growth and investor inflows were moderate in EM hedge funds in 2011—HFR data shows that investors withdrew $2.2 million from such funds in Q4 11 while hedge fund capital invested in EM funds rose by over $2 billion, hitting $117.8 billion globally. HFR attributes the latter development to strong performance-based contributions concentrated in several large EM managers.
For the full year 2011, hedge fund capital invested in emerging markets grew by $3.5 billion, an increase of 3.0%, on a modest net capital inflow of just $200 million, and was the first calendar year since 2007 in which EM hedge funds have experienced a net capital inflow.
Equity hedge strategies saw the strongest capital growth among EM hedge funds in 2011, registering inflows of $1.7 billion and performance-based asset growth worth $8.7 billion.
By region, emerging Asia experienced the strongest net inflows for 2011, at $1.4 billion in net new capital.
“Global investors exhibited a level of risk aversion toward EM hedge funds similar to that of the broader hedge fund industry in 2011, but early 2012 performance may constitute a crucial inflection point for investor risk tolerance,” stated Kenneth J. Heinz, president of HFR. “Hedge funds investing in Emerging Markets have outperformed both the broader hedge fund industry and developed market equities since 1990, while at the same time, EM hedge funds have evolved to offer more sophisticated, transparent and institutional products which are likely to contribute to capital growth in coming years.”