Hedge funds investing in emerging markets posted strong gains to end the first quarter and have extended those gains into the second quarter, according to data from Hedge Fund Research.
Hedge funds investing in emerging markets posted strong gains to end the first quarter and have extended those gains into the second quarter, according to data from Hedge Fund Research.
Following a gain of over one per cent in the volatile Q109, the HFRI Emerging Markets (Total) Index advanced over 7.5 per cent in April, the best performance month since December of 2000.
Strong performance in March and April offset losses in the first two months of the year, with the index gaining nearly nine per cent year to date.
For the quarter, asset gains due to performance added USD5.1bn to emerging markets hedge funds assets under management, nearly offsetting investor withdrawals of USD6.4bn. In aggregate, AUM in emerging markets hedge funds declined by USD1.2bn to USD66.2bn; this followed a drop of nearly USD23bn in Q4 2008.
The strong performance by emerging markets hedge funds YTD 2009 follows a decline of -37.2 per cent in 2008, the worst calendar year performance for emerging markets since HFR began tracking hedge fund data in 1990.
While prone to volatility, emerging markets hedge funds have historically posted strong gains following market bottoms; in the 12 months following the trough of each of the five largest performance declines, these funds have produced an average gain of 23.3 per cent.
‘Investors exhibited extreme risk aversion at the end of 2008, withdrawing record amounts of capital. While redemptions continued in the first quarter at a slightly lower level, risk aversion began to recede into the end of the quarter and has continued to fall,’ says Kenneth Heinz, president of Hedge Fund Research. ‘Hedge funds investing in Emerging Markets have produced strong, albeit volatile, long-term performance, posting an annualized gain of more than 12.5 per cent since 1990, nearly double that of the S&P 500.’
Funds investing with a dedicated focus on Mena comprise more than two per cent of emerging markets hedge fund assets, reflecting an increase from less than 0.5 per cent in 2002.
Of all funds focused on emerging markets, those investing in Russia/Eastern Europe have posted the strongest performance over the last ten years, gaining 19.3 per cent annualized, but with tremendous volatility. Over 20 per cent of all emerging market hedge fund capital is currently focused on Russia/Eastern Europe, up sharply from 14 per cent in 2002.
Brazil is second only to China with regard to the number of funds located in any emerging markets region, with more than 7.5 per cent headquartered in Brazil. The 100 funds currently investing in Latin America are the smallest in terms of average size of approximately USD40m, but these posted a gain of nearly two per cent in Q1 09 and over 9.6 per cent in April alone.
Meanwhile, there are currently more than 460 funds focused on emerging Asia, encompassing 46 per cent of all emerging markets funds. Nearly 13.5 per cent of emerging markets funds are located in China. Despite tremendous volatility of the underlying equity markets, hedge funds investing in emerging Asia have produced cumulative gains over the last three years and have posted the smallest losses of all emerging markets regions over the last 12 months.
