Industry Updates

Emerging markets hedge fund capital on the rise - HFR

Friday, November 30, 2012

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Opalesque Industry Update: The hedge fund industry expansion into Emerging Market economies accelerated in 3Q12, with both total hedge fund capital and the number of Emerging Markets hedge funds reaching record levels, according to data released today by HFR, the global leader in the indexation, research and analysis of the hedge fund industry. Hedge fund capital invested in Emerging Markets globally expanded to $127.8 billion, an increase of +8.5 percent YTD 2012, according to the latest HFR Emerging Markets Industry Report. The report also shows that the number of hedge funds investing in Emerging Markets increased to 1,085, an increase of +4.8 percent YTD through 3Q12 to a record high.

Hedge funds have posted strong performance gains in Emerging Markets through much of this year’s developed market-centric macroeconomic uncertainty, which included political, fiscal, monetary, and banking concerns, as well as the European sovereign debt crisis. The HFRX Emerging Markets Composite Index has gained +5.3 percent YTD through October, with positive contributions from all constituent regions. Emerging BRIC exposure has led EM performance gains, with the HFRX BRIC Index gaining +4.9 percent in 3Q and +8.6 percent YTD. The volatile HFRX India Index gained over +12.0 percent in 3Q and over 20 percent YTD, topping the gain of the Sensex 30. The third quarter represents the 10th time since its 2005 inception in which the HFRX India Index has gained more than +12.0 percent in a quarter.

Hedge funds investing in Latin America have also posted strong gains with the HFRX Brazil Index gaining over +7.1 percent YTD, topping the Bovespa by 650 bps; total hedge fund capital invested in Latin America has increased to $6.4 billion. Total capital invested in Russia/Eastern Europe increased to $22.0 billion, as the HFRX Russia/Eastern Europe Index posted a gain of +6.0 percent for 3Q12. Despite regional secular unrest, the HFRX MENA Index has also gained +6.0 percent YTD, with the number of hedge funds dedicated to investing in the Middle East expanding to 34 as of 3Q12.

Hedge funds investing in Emerging Asia have continued to attract investor capital, although absolute performance gains have been muted relative to those of other Emerging Markets. The HFRX China Index has gained +1.6 percent YTD, topping the decline of the Shanghai Composite by nearly 750 bps. The HFRX Korea Index also posted a strong gain of +7.6 percent in 3Q12. The number of hedge funds investing in Emerging Asia has also eclipsed a growth milestone, and now comprises over 500 hedge funds.

“In the challenging current environment, Emerging Markets exposure is a definitive area of growth and driver of performance for the global hedge fund industry,” stated Kenneth J. Heinz, President of HFR. “Recent performance validates not only the EM decoupling from developed market turmoil, but also the degree to which EM exposures have evolved away from local equity market beta, allowing EM hedge funds to outperform local equity markets while also participating in the growth of EM economies. For these reasons, EM hedge funds will continue to represent exciting and compelling opportunities for institutional investors into 2013.”

HFR

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