HFR: Emerging Market Hedge Funds Slammed in January; Performance, Assets Decline

Feb 25 2016 | 11:26pm ET

Concerns about slowing growth in China, a weakening yuan, falling energy prices and geopolitical risk torpedoed emerging market hedge funds in January, according to the latest data from industry data provider Hedge Fund Research. 

HFR’s HFRI Emerging Markets Index dropped -5.4% for the month, following a -3.2% decline in 2015, according the newest edition of the company’s Asian and Emerging Markets Industry Report

Total emerging markets hedge fund capital declined by $8.5 billion during the period to $182 billion, erasing the FY 2015 asset increase of $7.5 billion, HFR noted in a statement. 

Unsurprisingly, volatility in China was at the core of the region’s performance as global investors shunned risk assets. Illustrating the roller-coaster ride, HFR’s HFRI EM: China Index fell -10% in January after three consecutive months of gains and a 2015 return of +6%. The widely followed index was ahead a whopping 23% through May ’15 only to fall -19% between June and September, HFR noted. 

Other Asian hedge fund indices posted similar performance in January, as the HFRI EM: Asia ex-Japan Index fell -8.5%, while the HFRI Japan Index declined -3.6%.

Summarizing HFR’s regional findings:

  • Total capital invested in Asian hedge funds fell $6.6 billion in January after posting a narrow asset decline of $700 million in FY 2015. Investors redeemed over $800 million from Asian hedge funds in 4Q15, roughly the same amount withdrawn in 3Q. 
  • Hedge funds investing in the Middle East region also experienced steep losses in January, with the HFRI MENA Index down -6.2% for the month, following a decline of -6.7% in 2015. Total investor capital invested in Middle East-focused hedge funds fell to $3.8 billion in January.
  • Hedge funds investing in Russia and Latin America also posted losses in January, though these losses were modest, relative to other EM regions. The HFRI EM: Russia/Eastern Europe Index declined -1.9% in January after gaining +5.5% in 2015. Total capital invested in Russian-focused hedge funds fell to $26.4 billion as of month end. 
  • The HFRI EM: Latin America Index posted the smallest decline of the major EM regions, with the Index falling -1.8% in January, following a decline of -20.9% in 2015, the worst calendar year of performance since a -29% drop in 2008. Total hedge fund capital invested in Latin America-focused hedge funds declined to $5.4 billion through January, after falling by $4.7 billion in 2015.

“Extreme dislocations across EM currency, commodity, fixed income and regional equity markets resulted in an acceleration of performance volatility and asset declines in both 4Q15 and early 2016,” stated Kenneth Heinz, president of HFR, in a statement. 

“While geopolitical and economic uncertainty continue to dominate the near-term EM outlook, recent adverse developments have also contributed to a richening of the opportunity set for managers and investors with the risk tolerance to monetize and benefit from these developments,” he continued.

Established in 1992, HFR produces the HFRI, HFRX and HFRU Indices, industry benchmarks for global hedge fund performance. HFR calculates over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.

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