Investors Flood Emerging Markets

Feb 11 2008 | 12:35pm ET

Investors are chasing performance all around the world, pouring $9 billion into emerging markets hedge funds.

The number of hedge funds dedicated to emerging markets rose to more than 950 last year, according to Hedge Fund Research, especially in funds focused on South America, the Middle East and Africa. Russia, Eastern European and emerging Asia also saw continued growth.

The strategy now manages some $110 billion.

The growth—a relative drop in the bucket at under 5% of new hedge fund assets, as the now-$1.87 trillion hedge fund industry added $194 billion last year—is not a surprise, given emerging markets funds’ success in recent years. The strategy was far-and-away the best performer in 2007, returning more than 25% while the average hedge fund added less than 11%. It has also been the best-performing hedge fund strategy in four of the past five years, according to HFR, though it suffered alongside other strategies last month, losing more than 5%.

“The success of emerging markets hedge funds—combined with the recent activity of sovereign wealth funds—is beginning to have a noticeable impact on global capital markets,” Kenneth Heinz, president of HFR, said. “Both have acted as liquidity providers to private corporations looking to strengthen balance sheets in recent months, a trend we expect to continue in 2008.”

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