HFR: LatAm Hedge Funds Surge as Region Leads EM Recovery

Aug 17 2016 | 11:12pm ET

Hedge funds focused on Latin America have posted strong gains so far this year, reversing declines in place for the last three consecutive years and four of the last five, according to a new report from Hedge Fund Research.

The region leads all areas of hedge fund performance through the first half of 2016, HFR noted in its most recent Emerging Markets Hedge Fund Industry Report, with the HFRI EM: Latin America Index surging +8.9 percent in Q2/16. The index added another +4.3 percent in July, bringing YTD performance to +24.4 percent for 2016. 

The YTD gain represents the strongest 7-month performance period for the index since gaining +30.4 percent over the 7-months ending October 2009. 

Assets are rising as well, HFR’s data reveals. EM hedge fund assets increased to $189.8 billion through mid-year, up $4.7 billion from the prior quarter, although down $1.5 billion from the YE 2015 asset total of $191.3 billion. 

Total hedge fund capital invested in Latin America increased to $5.9 billion, with the estimated number of funds remaining unchanged at 107, HFR said. In addition to the LatAm gains, funds investing in Russia also posted strong performance, with the HFRI EM: Russia/Eastern Europe Index advancing +5.4 percent in 2Q16 and +14.7 percent YTD 2016 through July. Total hedge fund capital invested in Russia/Eastern Europe increased to $26.6 billion, an increase of over $1.1 billion from the prior quarter, managed by over 170 funds.

Hedge funds investing in Emerging Asia recovered early year losses, with the HFRI EM: Asia ex-Japan Index advancing +3.3 percent in July and bringing YTD performance to +1.0 percent, fully recovering the -9.7 percent decline over the first 2 month of 2016 and topping the sharp decline of -15.8 percent for the Shanghai Composite Index.

Total capital invested in Emerging Asian hedge funds increased to $48.5 billion, managed by over 520 funds. The HFRI EM: MENA Index posted a narrow decline of -0.6 percent in 2Q16, though the Index has declined -6.8 percent YTD through July. Total capital invested in MENA focused hedge fund increased to nearly $4.0 billion, managed by nearly 50 hedge funds.

"Emerging markets capital increased through mid-2016, driven by strong performance in Latin America and Russia, as energy and commodity markets recovered, currency volatility spiked, and regional EM equity markets posted solid gains," stated Kenneth Heinz, President of HFR. "EM hedge funds have successfully navigated gains in the US Dollar, Japanese Yen, and Swiss Franc, as well as Brexit-related declines in the British Pound Sterling. 

“With developed market rates remaining suppressed by stimulus measures through mid-year, specialized hedged EM exposures represent a compelling opportunity for global investors, benefitting from either continued low rate environment or increasing global inflation," he added.

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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