HFR: Chinese Hedge Funds Surge 7.5% in Q3/16 as Asia-based Assets Recover

Nov 11 2016 | 7:11pm ET

Hedge funds in Asia posted strong gains in the third quarter as total capital increased in the sector grew and losses from the first few months of the year are pared or, in some cases, erased, according to the latest edition of Hedge Fund Research’s Asian Hedge Fund Industry Report

Recovery in China’s Shanghai Composite Index and stabilization in renminbi helped Chinese hedge funds surge +7.5 percent in 3Q, while the HFRI Asia ex-Japan Index climbed +6.7 percent, according to the report. Both the HFRI China Index and the HFRI EM: Asia ex-Japan Index outperformed the Shanghai Composite Index by 400 and 500 basis points (bps), respectively, for the quarter; these gains increased the YTD performance differential to 1500 and 1900 bps.

Total capital invested in Asian hedge funds increased to $111.8 billion in the quarter, recovering the decline from the prior quarter but remaining below the record of $119.8 billion from 2014. As previously reported, global hedge fund industry capital reached a record $2.971 trillion to end the quarter.

Hedge funds focused on investing in Japan also produced positive returns in 3Q16, as the yen posted intra-quarter gains against the dollar and the Nikkei 225 pared YTD losses. In a reversal from its 1H16 performance, the HFRI Japan Index advanced +1.95 percent in 3Q, though trailed the quarterly Nikkei 225 gain of +5.6 percent. In October, the HFRI Japan Index added +2.1 percent, increasing its outperformance of the Nikkei 225 to over 550 bps YTD.

In terms of strategies, Asian-located Event Driven (ED) and Relative Value Arbitrage (RVA) hedge funds have seen strong returns in 2016, leading the global composite index, as well as the overall ED and RVA strategy-specific indices. Asian-located ED hedge funds, which include Distressed, Merger Arbitrage and Shareholder Activist strategies, have climbed +8.4 percent YTD through October, leading the +6.8 percent return of the HFRI Event-Driven (Total) Index. 

Similarly, Asian-located, fixed income-based RVA funds have gained +8.2 percent YTD, leading the +6.0 percent return of the HFRI Relative Value (Total) Index. The HFRI Fund Weighted Composite Index, which encompasses all hedge fund strategies globally, is up +3.6 percent on the year, HFR noted.

 “Asian hedge funds have effectively navigated intense regional equity market and currency volatility in 2016, topping sharp YTD losses for the Shanghai Composite and the Nikkei 225,” stated Kenneth Heinz, president of HFR. “With the macroeconomic and political overhang of both the U.S. election and Brexit now removed, and as global M&A continues to accelerate, we expect strong performance of specialized Asian hedge fund strategies to attract global and institutional investors while leading industry performance into 2017.”

Established in 1992, HFR produces the HFRI, HFRX and HFRU Indices, industry benchmarks for global hedge fund performance. HFR calculates over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.

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