HFR: AUM Of Emerging Markets Hedge Funds Hits Fourth Consecutive Quarterly Record

Aug 29 2017 | 9:23pm ET

Emerging markets continue to be popular among alternative asset managers, according to Hedge Fund Research, as total capital managed by EM hedge funds increased to a record level for the fourth consecutive quarter through mid-year 2017.

The boost comes as global growth synchronizes and investors adopt a more risk-on stance, pushing gains across both regional equity markets and emerging market currencies. 

Emerging Markets (EM) hedge fund capital increased to $213.3 billion. HFR said in its latest Emerging Markets Hedge Fund Industry Report, as investors allocated new capital to to the segment for the first time since 2Q15, 

EM funds received $800 million in net new inflows during the second quarter, while overall EM capital increased by $7.5 billion. Performance has been helpful: HFR’s HFRI Fund Weighted Composite Index was up +4.8% for 2017 through July while its HFRI Emerging Markets (Total) Index has booked +12.6% over the same period. 

Regional highlights from HFR’s report:

  • Hedge funds investing in India and China are leading YTD EM performance, HFR added, with the HFRI EM: India Index surging +3.6% in July and pushing YTD returns to +25.5% - more than 300 basis points over the gains seen by Indian equity benchmarks. 
  • Similarly, Chinese hedge funds as measured by the HFRI EM: China Index advanced +3.5% in July and are up +19.3% YTD, beating the Shanghai Composite Index by nearly 1400 basis points over the same period. Total hedge fund capital invested in Emerging Asia-focused hedge funds increased to $52.5 billion. 
  • Hedge funds investing in the Middle East surged +1.2% in July, bringing the YTD returns of the HFRI EM: MENA Index to +9.6%. Meanwhile, MENA-focused hedge funds saw their assets grow to nearly $5.0 billion, managed by approximately 50 regionally-focused funds. 
  • Hedge funds investing in Latin America extended strong 2016 gains into mid-year 2017, with the HFRI EM: Latin America Index climbing +10.7% through July, following a return of +27.2% in 2016. Capital invested in LATAM-focused funds increased slightly to $6.6 billion. 
  • Hedge funds investing in Russia/Eastern Europe gained +2.3% last month, pushing YTD returns into the green at +1.6% YTD. The regional segment is trailing other EM and global regions thus far this year, and total capital invested in Russian/Eastern European funds has declined slightly to $28.9 billion. 

“Inflows returned to EM hedge funds after eight quarters of outflows as investor risk tolerance increased, driven by outstanding performance and regional equity market outperformance concentrated in Emerging Asia,” stated Kenneth Heinz, president of HFR, in the statement. “Ongoing regional equity and currency market adjustments, including the recent surge in the Renminbi, to active and fluid negotiations of trade agreements are likely to contribute to increased opportunities for specialized EM hedge funds.” 

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

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