Emerging-market hedge funds take hard hit

Date: Friday, December 12, 2008
Author: Jeff Benjamin, Investment News.com

A lower appetite for risk among investors has added up to some lousy returns for hedge funds concentrated in emerging markets, according to the latest data from HFR Group LLC in Chicago.

While hedge funds have suffered in stride with the overall economic meltdown, the emerging-markets subcategory has been particularly brutalized, according to HFR president Kenneth Heinz.

“The hedge fund investor’s indication toward risk right now is very negative,” he said.

“People are so intolerant of risk that they’ll pay anything to get rid of it.”

The HFRI Emerging Markets Index fell by nearly 29% during the four-month period ending Oct. 31.

When the performance losses are added to the $5.2 billion worth of investor redemptions over the period, the hedge fund category declined during the period 33%, to $75 billion for the quarter, which is its lowest point in two years, according to HFR.

This compares to a drop of 19% of all hedge fund assets over the period, to $1.5 trillion.

“This is the opposite of what we were looking at 18 months ago,” Mr. Heinz said.

Through the end of 2007, the emerging-markets category posted annualized returns of better than 25%, making it the best performing hedge fund strategy during that time.