Hedge Funds Betting On Emerging Markets
Tuesday, June 07, 2011

Hedge fund capital invested in Emerging Markets reached a new record level in the first quarter of 2011, as global investors increased exposure to Emerging Asia and Russia.

Total assets invested in Emerging Markets hedge funds increased to over USD121bn, surpassing the previous record level of USD117bn set in 2007, according to data released by HFR, the leading provider of hedge fund industry data. The quarterly asset increase of over 6.5% includes an inflow of nearly USD2.3bn in new capital, concentrated primarily in Emerging Asia, as well as USD5.1bn in performance-based gains, with these concentrated in Russia and Multi-EM regions.

The HFRI Emerging Markets (Total) Index posted a narrow gain of +0.96% for the first quarter and added +1.83% in April to bring 2011 year-to-date (YTD) performance to +2.80%, effectively navigating early year inflation-sensitive declines through Emerging Asian economies, as well as social and political unrest across Middle East economies, HFR said.

Building on its industry-leading gains in 2010, Russia/Eastern Europe-focused funds continue to lead EM hedge fund performance thus far in 2011, with the HFRI Russia/Eastern Europe Index gaining +8.22% YTD through April, the data shows. The weakest area of EM hedge fund performance has been from funds focused primarily on the Middle East, with the HFRX MENA Index declining -4.34% in Q1, though this index rebounded +1.4% in April, narrowing the YTD loss.

Capital invested in hedge funds focused on Latin America posted the largest percentage increase among all EM regions for Q1, with capital levels rising over 15%; the HFRX Latin America Index trailed only Russia on a YTD basis through April, with LatAm gaining +3.6%. Emerging Asia continues to represent the largest concentration of EM hedge funds, with nearly 500 funds focused on this region; the HFRX Asia ex-Japan Index gained +2.81% in April, offsetting early year weakness to bring Index performance into positive territory for 2011.

“The record level of assets invested in Emerging Market hedge funds represents the latest evidence that global investors continue to exhibit a preference for accessing specialized Emerging Markets exposure via hedge funds,” said Kenneth J. Heinz, President of HFR.

“As a direct result of the strategic specialization, sophistication and improved structure of Emerging Market hedge funds, the number of funds located in Brazil, China, Russia, Singapore and UAE all continue to grow, and we expect this trend to continue in 2011 and in coming years,” Heinz added.