Asia-Focused Hedge Funds Back On Track In Q1

May 14 2009 | 8:56am ET

Asia-focused hedge funds are rebounding from a disastrous 2008 with gains of over 8.5% this year, including a 7% jump in April, according to the HFRI Emerging Markets Asia ex-Japan Index.

Despite the recent gains, investors withdrew US$9 billion from hedge funds investing in Asia in the first quarter of 2009 and total capital invested in Asia-focused hedge funds fell to US$65 billion at the end of the first quarter, approximately US$45 billion below the record level achieved at the end of 2007. Globally in the first quarter, investors withdrew more than US$103 billion from hedge funds, reducing total industry assets to US$1.33 trillion.

As a result of positive performance, funds investing exclusively in emerging Asia or across both emerging Asia and Japan posted a performance-based asset gain of over US$2.6 billion, according to HFR. Hedge funds investing in emerging Asia have posted gains in three of the last five months, after losses of nearly 33.5% in 2008. Funds focused solely on Japan generated a performance-based asset loss for the quarter of approximately US$575 million.

There are currently over 1,000 hedge funds focused on investing in Asia, representing over 15% of the total number of funds in the global industry and exceeds the 12% focusing on Europe. However, Asia-focused funds are characteristically smaller, accounting for 4.9% of total industry assets versus the nine per cent found in European-focused funds.

China is home to the third largest number of hedge fund firms globally. While over 85% of firms are located in the U.S. and the U.K., nearly 3% of firms are headquartered in China. Also reflecting an increasing trend of operating funds in local markets, while 48% of all funds investing in Asia are still located in the U.S. and U.K., 20% of funds investing in Asia are located in China, up from 17% one year ago.

“Hedge funds investing in Asia began the current period of consolidation earlier than the overall industry, but also now appear to be stabilizing earlier,” said Kenneth Heinz, president of Hedge Fund Research. “Global investors are likely to have strong interest in allocating to Asia-focused hedge funds in 2009, as they look to access Asia's superior secular growth dynamics, supported by the relative stability of the region's banking sector and global currency reserves.”


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