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James Williams, news editor, Hedgeweek

Industry consolidation and increased regulation top concerns for hedge fund managers, Emerging Markets hedge fund numbers and total invested capital reach record levels…

Asian ex-Japan hedge funds returned an estimated 1.28 per cent in November according to Eurekahedge, to leave in a reasonably satisfying position of +7.49 per cent YTD. What a sharp contrast to the same period last year, which saw losses of -3.89 per cent and a dismal YTD return of -11 per cent.

Strong performers last month included CTA/managed futures, gaining +3.48 per cent, and multi-strategy hedge funds, up +3.31 per cent. That leaves them +7.38 per cent and +7.65 YTD respectively. Long/short equity strategies recorded more modest gains of +1.07 per cent to leave them up +6.94 per cent for the year. Early estimations show that Greater China hedge funds also finished in positive territory for the forth consecutive month, up +1.32 per cent to put them +6.71 per cent for the year. 

Looking specifically at Emerging Markets, a recent report by Hedge Fund Research shows that in Q3 total hedge fund capital and the number of funds operating in that space reached record levels. Total hedge fund capital invested in Emerging Markets globally stands at USD127.8billion, up +8.5 per cent YTD. Fund numbers have risen +4.8 per cent through Q3 to a record high of 1,085 funds. The report found that Emerging BRIC exposure has driven performance, the HFRX India Index, in particular, having gained an impressive +12 per cent in Q3 and over 20 per cent YTD: that’s the 10th time since 2005 that this index has recorded gains of more than 12 per cent. If global investors can stomach the volatility of India’s market, there are clearly some compelling returns to tap into. The number of funds now investing in Emerging Asia has topped the 500 mark.

Kenneth J. Heinz, President of HFR
, was quoted as saying: “In the challenging current environment, Emerging Markets exposure is a definitive area of growth and driver of performance for the global hedge fund industry. Recent performance validates not only the EM decoupling from developed market turmoil, but also the degree to which EM exposures have evolved away from local equity market beta, allowing EM hedge funds to outperform local equity markets while also participating in the growth of EM economies. For these reasons, EM hedge funds will continue to represent exciting and compelling opportunities for institutional investors into 2013.”  

Sydney-based AMP Capital is hoping to attract a significant portion of the capital it’s raising for its second Capital Infrastructure Debt Fund from Asian investors
reported AsianInvestor this week. The target figure is USD1billion and with more than half of the investors in its predecessor vehicle, Fund I, coming from Asia, there’s probably good reason to be upbeat. The first fund closed in June with USD520million in assets and included a mixture of institutional investors such as pension funds and endowments from China, Japan and Australia, to name but a few. The success of raising capital for Fund I and the decision to roll out Fund II so soon afterwards demonstrates the growing popularity among investors for more niche strategies such as infrastructure funds.

Andrew Jones, AMP’s global head of infrastructure debt
, was quoted as saying: “We already have strong early interest in our second fund and we believe that the defensive, yield-focused characteristics of infrastructure debt represents a very good fit for Asian institutional investors.” Infrastructure debt funds work by providing long-term financing and asset re-financing to large-scale projects. AMP’s new fund will invest in the subordinated debt of infrastructure assets in such as areas as water, gas, electricity and transportation in North America, Europe and Australia.   

Industry consolidation and increased regulatory oversight with accompanying costs are the top two challenges facing hedge fund managers
according to a pool of 100 hedge fund managers interviewed by Ernst & Young, reported this week. More specifically for Asia, its hedge fund industry is facing something of an inflection point. Already more than 70 hedge funds in the region have shut down this year: more are expected in 2013. Farhan Mumtaz, head of analysis at Eurekahedge, was quoted as saying: “Returns are performance-based, so if they are performing well it does not necessarily mean they would be making a lot of cash for themselves, especially if they have a smaller asset base. The slowdown in the US and the sovereign debt situation in Europe have made matters worse for hedge funds in Asia as asset flows dried up because of risk aversion.”

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