HFR: Worst Year Ever For Emerging Markets Hedge Funds

Feb 24 2009 | 2:04am ET

Emerging markets hedge funds ended 2008 with seven consecutive down months, ending the worst year in the strategy’s history, according to Hedge Fund Research.

The 37% decline makes last year the worst on record since HFR began tracking emerging markets-focused funds in 1990, eclipsing the 33% drop of 1998.
Investors withdrew $6.7 billion from emerging markets funds in the fourth quarter, alone, with total hedge fund capital committed to emerging markets falling to under $67 billion globally. All told, emerging markets funds managed 43% less at the end of 2008 than at their peak at the end of 2007.

Emerging markets funds have been a top-performing strategy in six out of the past 11 years. The strategy characteristically experiences sharp recoveries after declines, with an average gain of over 23% in the twelve months following the five largest historical declines.

“Performance of emerging markets hedge funds has historically been characterized by cyclical extremes relative to the rest of the hedge fund industry,” said Kenneth Heinz, president of HFR. “Investors who have endured the volatility have realized an average gain of nearly 13% annually since 1990, with volatility that was similar to that of the S&P 500, which has returned 7.3% annually over the same period.”

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