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Emerging market hedge funds rise by USD1.4billion in Q2

September 1, 2011
- 11:39 pm

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Emerging market-focused hedge funds continue to curry favour with investors as their faith in a European and US economic recovery wavers.

Emerging market-focused hedge funds continue to curry favour with investors as their faith in a European and US economic recovery wavers. According to the latest report by US hedge fund data provider, Hedge Fund Research, EM hedge funds saw their assets swell by USD1.4 billion in Q2: USD300million as a result of new inflows and USD1.1 billion coming from performance-based returns. That’s now the fourth consecutive quarter that assets have grown: they now stand at a record USD123 billion. Macro hedge funds with an Emerging Market tilt did particularly well in Q2, gaining 9 per cent: a stark contrast to global macro hedgies, which, according to HFR, fell 1.67 per cent. The report found that EM relative value arbitrage funds made gains of USD1.2 billion in Q2 helping to absorb some of the USD2.1billion losses in EM equity funds.

Over the first six months, however, EM hedge funds have hardly excelled. The HFRI Emerging Markets (Total) Index was flat through June, but as of end-July it was up slightly at 0.22 per cent. By comparison the HFRX Total Emerging Markets Index was up 0.67 per cent. India and Brazil have both suffered this year, down 6.03 per cent and 2.95 per cent respectively, but Russia has at least found some momentum: the HFRX Russia Index is up 2.53 per cent YTD. The report also stated that EM fund numbers had remained relatively constant at just over 1,000 over the first six months of 2011. HFR President, Kenneth J Heinz (pictured), said that the decoupling and divergence of Emerging Markets from their developed market counterparts had become “increasingly evident and significant”. “As risk aversion has increased through mid-2011, investors are increasingly looking to Emerging Market hedge funds not only for continued secular economic growth, but also for tactical exposure to macroeconomic trends, currency stability, and hedged uncorrelated exposure to developed market equities,” said Heinz.

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