Withdrawals From Asian Hedge Funds Mirror Industry Declines

Feb 9 2009 | 1:05pm ET

Capital invested in Asian hedge funds continued to fall in the fourth quarter of 2008, declining nearly $16 billion to just over $71 billion, extending the losses and redemptions that characterized most of last year.

According to data released from Hedge Fund Research, assets invested in Asian hedge funds peaked at $111 billion at the end of 2007, six months before total industry assets peaked in mid-2008 at $1.93 trillion. While assets declined both globally and in Asian hedge funds in the second half of 2008, the drop in Asia has been more pronounced, with assets invested in the region declining by 28.9% against total industry assets losing 27.1%.

Hedge funds investing in both developed and emerging Asia experienced sharp performance losses in 2008, with the HFRI Emerging Markets: Asia (ex-Japan) Index falling 33.4% while the HFRX Japan Index declined 12.2%. The broad-based HFRI Fund Weighted Composite Index, which measures performance for the global hedge fund industry, declined 18.6% in 2008.

For the full year, performance-based asset declines in Asian funds exceeded the assets withdrawn by investors. However, in the fourth quarter investor redemptions of $8.6 billion exceeded the performance based asset decline of $7 billion.

Also, despite more moderate performance losses in developed Asia, the relative sub-regional distribution of assets has shifted away from Japan in the last year; capital dedicated to investing in Japan has declined nearly 5% relative to other Asian regions.

edge funds investing in emerging Asia have produced an annualized gain of greater than 8% over the last three years, significantly exceeding global hedge fund benchmarks and equity market benchmarks over the same period.

Excluding the U.S. and U.K., China and Singapore are the preferred management firm locations for Asian hedge funds, representing 36% and 20%, respectively.

“Despite full year performance losses for 2008, Asian hedge funds posted gains in December and some Asian equity markets have posted strong gains to begin 2009,” said Kenneth Heinz, president of HFR. “As investors perceive opportunities and risk tolerance recedes from extreme levels, we expect to again see leadership and growth from the Asian hedge fund industry.”

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