Assets invested in hedge funds focused on Asia fell by 10 percent from USD111bn to USD100bn during the first quarter of 2008, a period in which global financial markets declined broadly an
Assets invested in hedge funds focused on Asia fell by 10 percent from USD111bn to USD100bn during the first quarter of 2008, a period in which global financial markets declined broadly and volatility increased sharply, according to Chicago-based industry data provider Hedge Fund Research.
Despite the weakness, investors continued to allocate capital to Asia, with more than USD1bn in new inflows partially offsetting the decline in assets stemming from performance. New capital was directed to funds investing throughout emerging and developed Asia, while funds focusing exclusively on developed Asia experienced net redemptions.
Investors demonstrated a preference for arbitrage strategies, which attracted USD2.7bn in new assets during the first quarter, but reduced their exposure to equity hedge. This contradicts trends in the global industry, where capital inflows into equity hedge were accompanied by redemptions from some arbitrage strategies.
Emerging Asia was the weakest area of hedge fund performance in the first quarter, with the HFRI Emerging Markets: Asia (ex-Japan) Index falling nearly 14 per cent. The decline follows a long period of strong gains for the emerging Asia strategy, which has returned an annualised average of nearly 22 per cent since 2002.
Globally, investors pulled back on investing in hedge funds during the first quarter of the year, with a net inflow of just USD16.5bn in new capital into the industry. HFR says total capital under management globally was virtually unchanged at USD1.875trn at the end of March, compared with USD1.868trn three months earlier.
Assets in funds of hedge funds were also largely unchanged at just over USD800bn, with the 0.38 per cent increase in capital the smallest since the second quarter of 2004, while the net capital inflow of 0.87 per cent was the smallest increase since the industry experienced a net redemption of capital in the final quarter of 2005.
The sluggish start to 2008 follows a year in which investors allocated a record USD194bn to the industry, and comes against the backdrop of a quarter in which the HFRI Fund Weighted Composite index fell by 3.06 per cent.
‘The Asian hedge fund industry currently represents nearly 14 per cent of the global number of hedge funds but only about 5.3 per cent of the capital, suggesting it is at an earlier stage in its development than that of the US and Western Europe,’ says HFR president Kenneth Heinz.
‘As the industry grows and matures, Asian hedge fund investors are likely to benefit from the introduction of a broader range of strategies that will give them an enhanced ability to invest long and short as a vehicle for managing market volatility. Given the level of wealth creation in Asia, the long-term prospects for growth in hedge funds focusing on Asia remain strong.’
HFR data is based on more than 12,000 funds tracked historically by the firm, including more than 7,600 funds reporting as part of the HFR Database subscription product. Founded in 1993, HFR Group is a provider of hedge fund data, research, indexation and asset management products and services, including the HFRI and HFRX indices of hedge fund industry performance.
