Global crisis accelerates retreat from Asian hedge funds as investors pull USD3.4bn

Global crisis accelerates retreat from Asian hedge funds as investors pull USD3.4bn

Assets invested in hedge funds focusing on Asia fell sharply in the third quarter as a combination of performance-based losses and investor withdrawals affected funds across all areas of the region and strategies, according to Chicago-based industry information and performance data provider Hedge Fund Research.

Faced with nearly USD10bn in performance-based losses for the quarter, investors withdrew more than USD3.4bn, resulting in a 13 percent decline in the size of the Asian hedge fund industry, whose assets fell from USD100bn to USD87bn, HFR says.

The fall in Asian hedge fund assets slightly exceeded the average decline over the quarter for the global hedge fund industry, which saw assets under management drop 11 percent from USD1.93trn to USD1.72trn. The total number of hedge funds investing in Asia also fell slightly, from 1,078 at the end of June to 1,065 three months later.

According to HFR, Asian equity hedge funds saw the largest outflows of any strategy group in the third quarter, with investors withdrawing USD2.9bn. Investors also pulled USD366 million from event-driven funds and USD196 million from relative value strategies.

Funds investing in all regions of Asia have suffered from negative performance over the 10 months to the end of October, with the HFRI Emerging Markets Asia ex-Japan Index down 33.69 per cent so far this year and the HFRX Japan Index declining by just under 13 per cent (albeit less than one-third of the decline experienced by the benchmark Nikkei 225 equity index).

Asian exposure to financial institutions affected by the global credit crisis differs from that of the global industry, with Morgan Stanley and Goldman Sachs the leading prime brokers and HSBC and Citco the top administrators of Asia-focused hedge funds, HFR says.

'Losses in the third quarter of 2008 represent an incredible contrast to the third quarter of 2007, in which hedge funds investing in emerging Asia gained 8.7 per cent,' says HFR president Kenneth Heinz (photo).

'The combination of a slowing global economy and ongoing financial crises presented challenges this past quarter. However, into 2009, Asian hedge funds will be responding to an increased government economic stimulus and corporate acquisitions, which are likely to have a broad impact on the liquidity and structure of financial markets.'

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