Hedge Fund Investors Exit Emerging Markets

Dec 11 2008 | 12:52pm ET

A sharp spike in investor risk aversion had a significant impact on hedge funds investing the emerging markets in the third quarter, when the HFRI Emerging Markets (Total) Index declined nearly 29%.

According to Hedge Fund Research, investors redeemed over $5.2 billion in capital from hedge funds investing in emerging markets during the same period. When performance-based asset losses are included, capital invested in emerging markets hedge funds fell more than 33% to less than $75 billion, less than 5% of all hedge fund capital and an absolute level not seen since end of 2006. Total capital invested in hedge funds globally has fallen by 19% over the same period.

Asset declines were widespread across all emerging market regions and strategies, but the most severe losses were in equity hedge funds, which lost over $23 billion in assets, and in funds focused on Russia and Eastern Europe, where assets fell by over $12 billion. But while emerging markets hedge funds have declined over 34% over the last 12 months, the losses have still not exceeded those from the financial crisis of 1997 and 1998, when emerging markets hedge funds declined over 43%.

“Emerging Market underpinnings of secular growth and improved fundamentals were ignored and overwhelmed by fear and risk aversion,” said Kenneth Heinz, president of HFR. “In a tumultuous flight to quality, investors looked to liquidate portfolios of any risky assets in favor of the perceived security of developed government bonds, and emerging markets hedge funds were some of the most heavily impacted by this. Risk, of all types, was out of favor in the third quarter.”


In Depth

JOBS Act Propels Real-Estate Crowdfunding Platform

Oct 21 2014 | 2:57am ET

If D.J. Paul were a real estate development, he would be described as “multi-use...

Lifestyle

Balyasny Pays Over $6M For Lakefront House

Oct 22 2014 | 10:29am ET

A venture headed by hedge fund manager Dmitry Balyasny just paid $6.2 million for...

Guest Contributor

Hedge Funds Weather A Data Management Perfect Storm

Oct 22 2014 | 12:28pm ET

From a regulatory standpoint, nearly every development since the crisis has placed...

 

Videos

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.