Emerging Markets hedge funds led broad-based performance gains across the global hedge fund industry to start 2012, with the HFRI Emerging Markets (Total) Index gaining +4.4 per cent for the month of January, as reported by HFR.
Prior to January gains, Emerging Market hedge funds concluded a challenging year in 2011, posting an average decline of -13.8 per cent, the 3rd worst calendar year since 1990.
January gains nearly matched similar gains to start 4Q11, when the HFRI EM Index gained +4.7 per cent in October, and marked the 9th time since the conclusion of the Financial Crisis of 2008 that EM hedge fund performance has exceeded 4 per cent in a month. The HFRI Russia/Eastern Europe Index gained +5.9 per cent in January, following a decline of -18.5 per cent in 2011. Similarly, the HFRI Latin America Index gained 6.0 per cent in January after declining by -10.4 per cent in 2011. The HFRX MENA Index and HFRI Asia ex-Japan Index gained +3.4 and +4.0 per cent, respectively, in January, after having declined -11.7 and -18.0 per cent in 2011.
The moderate pace of asset growth and investor inflows into Emerging Markets hedge funds mirrored the caution seen across the broader global hedge fund industry in 2011. Investors withdrew $2.2 billion from EM hedge funds in 4Q11, the 2nd consecutive quarterly net outflow; however, as a result of a strong performance-based contributions, concentrated in several of the largest EM managers, hedge fund capital invested in Emerging Markets increased by over $2 billion in 4Q11, reaching $117.8 billion globally. For the full year 2011, hedge fund capital invested in Emerging Markets grew by $3.5 billion, an increase of 3.0 per cent, on a modest net capital inflow of just $200 million, and was the first calendar year since 2007 in which EM hedge funds have experienced a net capital inflow.
The strongest strategy area for capital growth in EM hedge funds was Equity Hedge strategies, which experienced $1.7 billion in inflows and $8.7 billion in performance-based asset growth for 2011. By specific regional focus, Emerging Asia experienced the strongest net inflows for 2011, with these receiving $1.4 billion in net new capital.
“Global investors exhibited a level of risk aversion toward EM hedge funds similar to that of the broader hedge fund industry in 2011, but early 2012 performance may constitute a crucial inflection point for investor risk tolerance,” says Kenneth J Heinz (pictured), President of HFR. “Hedge funds investing in Emerging Markets have outperformed both the broader hedge fund industry and developed market equities since 1990, while at the same time, EM hedge funds have evolved to offer more sophisticated, transparent and institutional products which are likely to contribute to capital growth in coming years.”
