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Investments in Asia hedge funds halved in Q2 -data

Date: Friday, August 1, 2008
Author: Reuters

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Investors almost halved the money they put into Asia-focused hedge funds in the second quarter compared to the first three months of the year as a selloff in stocks hurt appetite for risky assets, data showed.

Asia-focused hedge funds received a net $530 million from investors in the April-June quarter, down from $1 billion in the first quarter, Chicago-based Hedge Fund Research said in a statement released late on Thursday.

Asian hedge funds grew by approximately $200 million to $100.48 billion, up just 0.25 percent from the first quarter, as inflows were mostly offset by a decline of nearly $320 million due to poor performance.

"Asian hedge fund investors reacted to continuing market volatility by adjusting allocations opportunistically to those regional markets that had posted sharp year-to-date losses," said Kenneth Heinz, president of Hedge Fund Research.

The bulk of Asian hedge funds are focused on equities rather than macro-strategies such as those investing in currencies, which outperformed stocks this year.

"This disparity in strategy composition, which had a positive influence on results for Asian hedge funds for the five-year period ending in 2007, has adversely impacted Asian hedge fund industry performance thus far for 2008," Heinz said.

The HFRI Emerging Markets Asia ex-Japan index fell more than 2.2 percent in the second quarter, bringing the year-to-date decline to over 13.8 percent. The HRFX Japan index gained 4.8 percent, narrowing the year-to-date loss to just over 7.1 percent.

Japan's Nikkei 225 .N225 had lost nearly 12 percent from the start of the year to the end of June, India's Sensex Index had fallen about 34 percent and Chinese stocks .SSEC dropped 48 percent in that period. [ID:nSP235321]

Assets that deployed equity hedge strategies declined by $600 million in capital, while the less directional macro and arbitrage strategies gained in the second quarter, the research showed.

Equity-focused strategies accounted for over 63 percent of assets and more than 74 percent of the total number of Asia-focused funds.

A stronger reliance on long/short equity strategies prevented a meltdown in Asia last year when some credit-linked hedge funds in the United States and Europe collapsed amid a worsening credit crisis.

Analysts have said Asian hedge fund managers will likely close down or be bought out in growing numbers this year in a painful bout of consolidation triggered by financial market turmoil.