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Russian war hits emerging markets hedge funds, says HFR

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Emerging Markets hedge funds extended Q1 declines through May, with losses driven by exposure to Russian assets as well as the impact of global inflation, rising US interest rates and slowing economic growth.

The HFRI EM: Russia/Eastern Europe Index plunged -50.6% YTD through April before surging +14.7% in May to pare YTD losses to -43.3%. Russian assets had plunged in value as the stock exchange closed and the Rouble posted steep losses before regaining some of the losses as the Russian Stock Exchange partially reopened. In addition to these geopolitical risks, global inflationary pressures increased to generational highs and the US Federal Reserve aggressively raised interest rates.

The HFRI Emerging Markets (Total) Index declined five consecutive months to start the year, falling -10.2% YTD through May, as reported today with the releases of the HFR Asian Hedge Fund Industry Report and the HFR Emerging Markets Hedge Fund Industry Report from HFR.

The investable HFRI 500 Fund Weighted Composite Index, which includes funds across all regions in both Emerging and Developed markets, declined -1.4% YTD through May, with gains in uncorrelated Macro strategies offset by declines in higher beta Equity Hedge exposures. The HFRI 500 Macro Index has surged +14.3% YTD through May, while the HFRI 500 Equity Hedge Index has declined -9.1% over the first five months of the year. Total Emerging Markets hedge fund assets declined to $258.3 billion in Q1 2022, down from the year end 2021 AUM record of $276.4 billion.

While Russian-focused hedge funds plunged to begin 2022, other EM regions posted mixed performance as oil prices spiked. The HFRI EM: Latin America Index advanced +6.9% over the first five months of the year, while the HFRI EM: MENA Index declined -2.4%, and the HFRI EM: China Index fell -17.6% YTD through May. Total capital invested in Asian hedge funds fell to $134.9 billion in 1Q22, down from $138.8 billion to end 2021.

Hedge funds with high exposure to cryptocurrency across EM regions including Korea, Russia, China, and the Middle East (as well as Japan) have navigated soaring volatility and steep declines , as the HFR Cryptocurrency Index plunged -35.3% YTD through May, this after the index vaulted +240.6% in 2021.

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