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Asian hedge fund industry expands to record number of funds

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The Asian hedge fund industry expanded to a record number of hedge funds in Q3 2012, as strong performance across emerging Asian strategies continued to attract the interest of both Asian and global investors, according to data released by HFR.

The total number of Asian hedge funds increased to 1,128 funds, which collectively manage USD84.3bn dollars (JPY6.7trn, RMB525bn), with the latter having increased 2.6 per cent through the first three quarters of 2012.

Asian hedge funds experienced a performance based increase of USD1.9bn in the third quarter, which was partially offset by net investor redemptions of USD900m. Total capital invested in the global hedge fund industry increased during 3Q to end the quarter at USD2.19trn (JPY175trn, RMB13.6trn).

Asian hedge funds have continued to generate strong performance, relative to both regional equity markets and the broader global hedge fund industry. The volatile HFRX India Index gained over 12.0 per cent in 3Q, its best performance since advancing over +38.0 per cent in 2Q09; the index has gained 22.4 per cent through the end of 3Q, topping the performance of the Mumbai Sensex 30.

Hedge funds focused on Korea also produced strong 3Q performance, with the HFRX Korea Index gaining 7.6 per cent, in line with the strong advance in the KOSPI. Japanese hedge funds continued to exhibit strong outperformance versus Japanese equities, with the HFRX Japan Index gaining 1.7 per cent for 3Q, topping the decline of 1.5 per cent in the Nikkei 225.

Hedge funds focused on China also exhibited outperformance versus Chinese equities, with the HFRX China Index gaining 1.9 per cent for 3Q, topping the decline of 6.26 per cent in the Shanghai Composite

In addition to expanding to a record number of funds, the Asian hedge fund industry has also increased the scope of core hedge fund strategy offerings to not only include equity hedge, by increasing investor capital dedicated to event driven, macro and relative value arbitrage strategies. While the Asian hedge fund industry continues to be heavily concentrated in equity sensitive exposures, an increasing amount of capital is being dedicated to strategies including quantitative macro, equity market neutral, commodity- and currency-focused and shareholder activist strategies.

Hong Kong and Mainland China continue to be the preferred location for fund launches, although Australia, Japan and India have also increased the number of funds located in those regions in the last year.

“The Asian hedge fund industry continues to generate favourable performance dynamics, with development of the industry toward more sophisticated hedge fund strategies contributing to increasing and consistent outperformance of regional and broad based equity index benchmarks,” says Kenneth J Heinz, president of HFR. “As Europe and US economies continue to face challenges presented by stimulus efforts, weak demand and uncertain political environments, Asian hedge fund strategies have increasingly utilised sophisticated investment strategies to isolate trading opportunities and structural inefficiencies unique to the Asian marketplace. As a result of these, many Asian hedge funds possess competitive advantages of powerful performance generating and funding capabilities not easily accessible outside Asia, which are likely to appeal to global investors through the current low asset return environment.”

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