Capital flows to Asian hedge funds top US, European funds
12 August 2013
News, Asia, Global
By Asia Asset Management
Building on strong recent performance gains, global investors increased allocations to Asian hedge funds in the second quarter with net inflows to Asian hedge funds exceeding the flows to both US and European-focused hedge funds, according to the latest HFR Asian Hedge Fund Industry Report, released on August 9 by Hedge Fund Research (HFR).
Investors allocated over US$3 billion of new capital to Asian hedge funds, with new inflows concentrated in equity hedge strategies and Japan-focused funds. As of 2Q, total capital invested in the Asian hedge fund industry increased to over $98.4 billion, the highest level since 2007. Total global hedge fund industry capital increased by nearly $40 billion to a record $2.41 trillion in 2Q13.
Asian hedge fund performance was again led by the HFRX Japan Index, which gained +6.3% in 2Q13, bringing year-to-date (YTD) performance through June to +18.7%. The HFRX Asia Equally Weighted Index, which allocates pro-rata across developed, emerging and blended Asian exposures, posted a gain of +1.4% for 2Q and +9.9% YTD. The HFRX China Index posted a narrow decline of -0.46% for 2Q13, paring the YTD gain for HFRX China to +6.4%. China-focused hedge funds have successfully avoided steep equity market declines associated with slowing economic growth and concerns about banking risks, outperforming the decline of -12.8% of the Shanghai Composite Index by over 1900 basis points YTD.
Asian capital inflows were led by equity hedge strategies, which received a net $2.2 billion in investor allocations; these were complemented by $1.2 billion in performance-based gains. Asian-focused event driven and relative value arbitrage funds experienced $390 million and $358 million in net inflows, respectively. Tracking the strong performance of Japanese equities, hedge funds focused on Japan received over $1.7 billion in net new capital, bringing total Japan-focused hedge fund capital to $24.8 billion, the highest level since 2Q08, prior to the financial crisis.
“Increased capital allocations to Asian hedge funds in the second quarter is another data point which underscores the significance of the Asian hedge fund industry to global investors, while the 2Q13 performance validates the strategic significance of hedged long/short exposures through what have become divergent equity markets of developed and emerging Asia,” stated Kenneth Heinz, president of HFR.
He continued: “Asian hedge funds have effectively implemented sophisticated hedge fund strategies which reduce excessive return volatility and equity market beta while maintaining exposure to powerful secular growth trends. With various themes developing into 2H13, including continuation of Bank of Japan stimulus measures, convergent economic growth rates in emerging Asia and systemic risk associated with off balance sheet liabilities of financial institutions, both Asian and global investors are likely to increase allocations to Asian hedge funds and benefit from these tactical performance dynamics.”
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