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January gains nearly matched similar gains to start 4Q11, when the HFRI EM Index gained +4.7 percent in October, and marked the 9th time since the conclusion of the Financial Crisis of 2008 that EM hedge fund performance has exceeded 4 percent in a month. The HFRI Russia/Eastern Europe Index gained +5.9 percent in January, following a decline of -18.5 percent in 2011. Similarly, the HFRI Latin America Index gained 6.0 percent in January after declining by -10.4 percent in 2011. The HFRX MENA Index and HFRI Asia ex-Japan Index gained +3.4 and +4.0 percent, respectively, in January, after having declined -11.7 and -18.0 percent 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 percent, 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,” stated Kenneth J. Heinz, 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.”

(press release)

HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers. HFR has developed the industry’s most detailed fund classification system, enabling granular and specific queries for relative performance measurement, peer group analysis and benchmarking. HFR produces over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus. With performance dating back to 1990, the HFRI Fund Weighted Composite Index is the industry’s most widely used standard benchmark of hedge fund performance globally. The HFR suite of Analysis Products leverages the HFR Database to provide detailed, current, comprehensive and relevant aggregate reference points on all facets of the hedge fund industry. HFR also offers consulting services for clients seeking customized top-level or more nuanced analysis. www.hedgefundresearch.com

BG