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Asia-Pacific hedge funds end tough first quarter with a flourish

The HSBC AsiaHedge Composite Index closed out a hard first quarter in 2005 with a gain of 2.2 per cent for the first three months of the year.

March was a tough month for the regionally invested funds. Both Asia including Japan and Asia excluding Japan strategies were negative. But the good news according to the HSBC AsiaHedge indices for these particular strategies is that managers were much better at doing some of the things that hedge funds are supposed to do - in this particular case, to protect capital on the downside.

Ex-Japan strategies did better than their Asia including Japan peers, down about -1.9 per cent compared to -3.7 per cent for the MSCI Pacific free ex-Japan index. The Pacific free index fell -2.5 per cent compared to -2.2 per cent for the Asia including Japan regional hedge fund strategy.

The numbers tend to suggest that these particular strategies have not become bastions for leveraged long-only funds. Losses in these particular strategies would have been much higher if that had been the case.

That said, the long term trend in convergence between the HSBC AsiaHedge Asia ex-Japan index and the MSCI Pacific free ex-Japan index bears watching closely. Directionless, dynamics driven markets are clearly not good for the health of many hedge funds.

The ability to be more hedge fund-like was more apparent elsewhere in the region in March, clearly where it's quite simply easier to hedge. Here, despite down markets for both the Nikkei and the Australian markets, both of the appropriate hedge fund indexes for these markets were in positive territory. The Australian All Ordinaries was down -1.3 per cent. The HSBC AsiaHedge Australia Index put on 0.5 per cent. Similarly, Japan invested hedge funds also did well, up 0.7 per cent compared to a drop of -0.6 per cent for the Nikkei.

Following a period when investors have grown remarkably cool on the Japan hedge fund space, marked by the much slower influx of funds in to that strategy in the latter part of last year, Japan long/short now leads the key Asia-Pacific hedge fund indexes along with Australia. Japan long/short Yen is now up 3.0 per cent for the year compared to 2.6 per cent for Australia. Asia including Japan assumes the rear-guard position for the first quarter of the year, up just 1.2 per cent.

Strategy                                 March 05                    YTD<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Asia inc-Japan USD                     -2.13                     1.16

Asia ex-Japan USD                      -1.86                     2.26

Japan long/short USD                   0.74                     2.89

Japan long/short YEN                   0.66                     3.03

Australia long/short AUS              0.47                     2.62

AsiaHedge Composite                 -0.02                     2.33

Emerging markets                        -2.07                     1.35

The HSBC AsiaHedge indices show median returns each month and measure the performance of hedge funds in four geographies, including Japan, Asia excluding Japan, Asia including Japan, and Australia.

The key data for the indices are supplied from the performance league tables of purely Asia-Pacific funds published monthly by AsiaHedge. Using median returns of the funds listed, the indices reflect the true average of the industry, making them effective benchmarks that clearly represent performance.

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