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Total capital invested in Emerging Markets hedge funds soared to a record of $127.3 billion (802 billion RMB) to end 1Q12, an increase of nearly $10 billion since year-end 2011, eclipsing the previous AUM record of $123 billion set in 2Q11. This increase in capital was driven by performance-based gains, as net new capital flows from investors remained muted, with funds experiencing inflows totaling $3.1 billion, while those experiencing outflows totaled $3.4 billion, resulting in a modest net outflow of $365 million in 1Q12. New capital flows were concentrated in Emerging Asia and Russia/Eastern Europe, which received $500 million in net new capital combined.

In addition to the strong performance across global emerging markets, hedge funds focused on specific EM regions posted even stronger gains in 1Q. The HFRI EM: Asia ex-Japan Index gained +7.3 percent, its best first quarter return since 2006, outperforming the Shanghai Composite by nearly 300 bps. The HFRX Latin America Index gained +8.4 percent, its best 1Q performance since 1999, mirroring strong gains across Latin American equities. The volatile HFRX Russia Index gained +11.0 percent, mirroring a similar gain from 2010 and the strong performance of Russian equities. The biggest gains in EM hedge funds were from funds investing in India, with the HFRX India Index gaining +18.8 percent during the quarter, outperforming Indian equity markets by 600 bps.

Number of Emerging Markets hedge funds eclipses record
The number of EM hedge funds continued to increase in the first quarter and now stands at 1,059 funds globally, eclipsing the previous record of 1,046 from 2007. Nearly half of all EM funds invest primarily in Emerging Asia, while the number of funds dedicated to investing in the MENA region increased by 20 percent in 1Q12. Over 15 percent invest primarily in Russia & Eastern Europe while nearly 10 percent of EM funds invest primarily in Latin America.

“Hedge funds investing in Emerging Markets continue to exhibit a resiliency to many of the developed market centric risk factors which continue to dominate investor concerns, posting record gains as developed market economies struggle with outstanding debt, low fixed income yields and weak growth prospects,” stated Kenneth J. Heinz, President of HFR. “In a similar manner to the broader global economy, EM hedge funds will play a crucial role serving as the growth engine in the expansion of the hedge fund industry by offering sophisticated, transparent investment strategies in emerging economies to a growing audience of global investors.”

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 (jgu@hfr.com, +86.15928870321).

(press release)

HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry, specializing in the indexation and analysis of hedge funds. www.hedgefundresearch.com

BG