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HFR sees China emerging as hedge fund capital

Friday, May 11, 2012
Opalesque industry Update - Hedge funds investing in Emerging Asia posted industry-leading gains to start 2012, with the HFRI EM: Asia ex-Japan Index gaining +7.4 percent in 1Q12, the best start for the index since 2006 when it gained +12.3 percent, according to data released today by HFR, the leading provider of data, indices and analysis of the global hedge fund industry. The HFR index of Emerging Asia hedge funds easily outperformed Chinese equity markets by over 450 basis points for 1Q; recent gains follow a volatile 2011 which saw the HFRI Asia Index decline by -18.08 percent. In contrast, while the HFRX Japan Index gained +5.2 percent for 1Q12, it trailed the strong quarterly gain of +19.2 percent for the Nikkei 225.

The number of active Asia-focused hedge funds increased to 1,101, approaching the record number of 1,107 Asia-focused hedge funds set in 4Q07. Total capital invested in the Asian hedge fund industry increased by over $4.5 billion since YE 2011 to $86.6 billion (544 billion reminbi; 6.9 trillion Japanese Yen) to end 1Q12. Asia-focused funds experienced a modest net capital of investor outflow for the quarter of $256 million (0.29 percent of capital); the sum of all funds which experienced net inflows totaled $1.39 billion, while funds experiencing net redemptions totaled $1.64 billion.

China has continued to emerge as the preferred location for hedge fund firms investing in Asia, with 30 percent headquartered in China, a significant increase since 1Q09 when 20% were China-based. Globally, China trails only the US, UK and Switzerland as the preferred location for hedge funds worldwide, ahead of both Canada and France by number of hedge funds. In the Asian region, Singapore is the second-most preferred location for Asian-focused funds, with nearly 10 percent of funds located there, followed by Australia and Japan, respectively.

“It is difficult to overstate how important the ability for investors to access Asian markets and investors as an integral component of the growth of the global hedge fund industry in coming years,” stated Kenneth J. Heinz, President of HFR. “China will continue to emerge as the capital of the Asian hedge fund industry, representing integral access to specialized local expertise and insight of Asian markets as sophisticated hedge fund strategies evolve to operate in these markets. As this occurs, funds operating in Hong Kong, Shanghai and Singapore will be as relevant and significant to investors as those operating in New York, London and Zurich.”

HFR Asian office completed successful first year of operations In consideration of the increasing significance of the Asian hedge fund industry to both global investors and the overall hedge fund industry, HFR established the HFR Asian office in 1Q11. The office focuses on both increased awareness of developments in the Asian hedge fund industry, as well as client service to the large and growing audience of investors utilizing HFR research. The HFR Asia office is located in China and managed by Mr. Josh Gu, Director of Quantitative Research and Asian Distribution.

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