Emerging markets (EM) hedge funds posted strong gains in Q3, driven by falling interest rate expectations, progress on trade negotiations, and optimism over near-term resolution of ongoing geopolitical conflicts, according to the latest data from HFR.
The HFRI EM: China Index surged 6.5% in August, while the HFRI Japan Index added 4.1%, bringing year-to-date returns to 16.2% and 16.5%, respectively. The broader HFRI Emerging Markets (Total) Index gained 3.5% in August and 13.2% YTD through August, outperforming the HFRI Fund Weighted Composite (FWC) Index, which covers globally based hedge funds investing across emerging and developed markets and rose 7.2% over the first eight months of the year.
Other regional indices also recorded robust gains, with the HFRI Latin America Index up 12.1% YTD and the HFRI EM: MENA Index advancing 13.6%.
Hedge funds with significant exposure to cryptocurrencies across EM regions – including Korea, Russia, China, and the Middle East – drove further performance, with the HFR Cryptocurrency Index climbing nearly 14% in July–August and posting 29.9% over April–August. Year-to-date performance through August stood at 1.3%, fully recovering losses from Q1 2025.
Total EM hedge fund assets rose to an estimated $263.7bn at the start of Q3 2025, the highest since Q4 2021, while Asian-focused hedge funds increased to $136.4bn AUM. HFR highlighted that fund managers remain tactically positioned, balancing exposures to AI investments, cryptocurrencies, and macroeconomic developments in Asia and emerging markets.
Kenneth J Heinz, President of HFR, said: “Asian and Emerging markets hedge funds have led strong industry performance gains into 2H25, led by powerful contributions from falling rates, progressing trade negotiations and expectations for resolution of ongoing military conflicts in Israel and Ukraine/Russia. In addition to these, exposures to continued acceleration of AI spending and gains in cryptocurrencies have also contributed to strong performance.”
