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Following two consecutive quarters of capital inflows, the Asian hedge fund industry saw net redemptions of approximately USD700m in the first quarter of 2010, reflecting continued concerns about strategic and regulatory risks, according to data from Hedge Fund Research.

The USD700m in investor withdrawals was offset by a performance-based increase of USD1.5bn, resulting in total assets invested in Asia-focused hedge funds increasing to just over USD77bn.

The number of Asian hedge funds declined modestly during the quarter to 1,036.

Although the redemption was modest in a relative sense, it is a significant divergence from recent trends in the overall hedge fund industry, which experienced an inflow of USD13.7bn.

Asian hedge funds continued to outperform equity benchmarks. The HFRX Japan Index gained 7.6 per cent in 1Q10, while the HFRX China Index was down 0.75 per cent.

1Q10 was the first quarter since the financial crisis in which developed Asian hedge funds outperformed emerging Asian funds.

Within the Asian hedge fund industry, equity hedge and event driven strategies, which include distressed and shareholder activist funds, have seen the most significant increases in assets since 1Q09.

The percentage of capital in Asian equity hedge funds is nearly twice that of the overall industry, with much less capital focused on macro and event driven strategies.

“Asian hedge funds were confronted with a variety of divergent market influences in the first quarter, and investor flows to Asian hedge funds reflect this,” says Ken Heinz, president of Hedge Fund Research. “Sovereign credit risk has moved to the forefront of investor concern, concurrent with a cyclical upturn in developed markets based on improving earnings and corporate credit, falling equity market volatility and continued regulatory pressure on hedge funds and financial institutions. In this environment, funds which can access these market dynamics with flexible, opportunistic strategies are likely to outperform and attract new investors.”


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