Industry Updates

Politics and policy drive year-end gains for Asian hedge funds

Wednesday, February 06, 2013

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Kenneth J. Heinz Opalesque Industry Update - The Asian hedge fund industry posted strong gains to conclude 2012, led by hedge funds investing in China, India and Japan, as capital invested in the Asian hedge fund industry increased by 7.5 percent for 2012, according to the latest HFR Asian Hedge Fund Industry Report, published by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. Total hedge fund capital invested in the Asian hedge fund industry increased to $88.25 billion (¥ 8.17 trillion, RMB: 555 billion), the highest level since 2007, prior to the Financial Crisis.

Total capital increased by $3.9 billion in 4Q12 on a net new inflow of $1.17 billion concentrated in Emerging Asia. Total capital invested in the hedge fund industry globally increased to a record level of $2.25 trillion (¥ 208 Trillion; RMB 14 Trillion) as of year-end 2012. The HFRX China Index posted a gain of +8.0 percent for 4Q12 and +9.4 percent for the full year, in line with the 4Q gain for the Shanghai Composite but outperforming Chinese equities for the full year as economic growth and inflationary pressure slowed into year end.

The volatile HFRX India Index gained +4.3 percent for 4Q12 and +27.6 for 2012, topping the gain of the Mumbai Sensex 30 and leading all regional hedge fund indices for 2012. Japanese elections and the ensuing economic policy stimulus resulted in strong year end gains for the Nikkei 225 and a sharp decline in the Japanese Yen, which traded at a 27-month low against the US dollar. The HFRX Japan Index gained +2.5 percent in 4Q12 and +8.1 percent for 2012, trailing the strong year end gain for Japanese equities. The HFRX Korea Index posted a narrow decline of -0.25 percent in 4Q12, in line with the Kospi Index.

The total number of Asian hedge funds increased by +5.3 percent in 2012 to nearly 1,150 with almost a third (31.7%) of all Asian hedge funds are located in China, an increase from 28.6 percent as of year-end 2011. The percentage of Asian hedge funds located in Japan and India also increased in the past year, while the percentage of funds located in Singapore and Australia, which represent the 2nd and 3rd largest share of Asian-domiciled fund locations, declined in 2012.

“The Asian hedge fund industry was well positioned for the series of important Asian macroeconomic developments which occurred in the 4Q, including moderating growth throughout Emerging Asia, the Japanese elections and the dramatic impact of the BoJ stimulus plan and inflation target increase on Japanese currency and equity markets,” stated Kenneth J. Heinz, President of HFR. “Asian investors continue to exhibit preference for tactical exposure to powerful trends in Japanese currency and equity market trends with a bias toward continued weakening of the Japanese Yen. As this dynamic environment continues to evolve, Asian-focused Equity Hedge and trend-following, quantitative Macro Systematic CTA strategies are likely to capture and benefit from these powerful trends.”

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