Equity growth boosts performance of Asia-focused hedge funds

The HFRI Emerging Markets: Asia (ex-Japan) Index gained 18.86% in the second quarter. This was the strongest quarterly performance gain since the fourth quarter of 1999 when the index gained 21.36%.

Performance-based asset gains in the second quarter totalled $6.8 billion for Asia-focused funds. Investor withdrawals fell to $3.6 billion, a sharp drop from over $17 billion withdrawn in the previous two quarters combined.

Assets in the Asian hedge fund industry increased by $3.2 billion to $68.2 billion, the first increase since the second quarter of 2008.

The HFRX China Index, a composite of funds focusing specifically on investing in China, gained 19.82% in the second quarter and 35.86% in the first half of 2009. This was the best six-month performance since the index's inception in January 2005.

Gains in hedge funds focusing on China are comparable with broader Chinese equity markets over the past three years. Hedge funds have posted these gains on significantly lower volatility, creating attractive risk-adjusted performance.

Over the last three years, the HFRX China Index has gained 69.4% cumulatively versus aggregate gains of around 77% by the broad-based Shanghai Composite

The HFRX China Index has produced gains on an annualised volatility of 16.9% percent while the Shanghai Composite has experienced an annualised volatility of 42%.

Hedge funds investing in Asia are continuing to locate in China. This is now home to the second-highest number of Asia-focused hedge funds.

The percentage of Asia-focused hedge funds in China rose to 23.6%, an increase of over 5% from one year ago. The number of Asia-focused funds based in China has surpassed the number headquartered in the UK and is approaching the number of Asia-focused funds located in the US.

"Investors looking to access growth in 2009 and beyond will allocate to Asia-focused hedge funds, according to Kenneth Heinz, president of Hedge Fund Research.

"As the Asian hedge fund industry continues to evolve, the diversity of strategy offerings continues to increase and more funds are locating in Asia, enhancing the robustness and appeal of the industry for global investors," he concluded.