Yuan revaluation drives hedge fund flows

Date: Tuesday, August 31, 2010
Author: John McDuling, Financial Standard

Investors flocked to Asian hedge funds in the second quarter, attempting to take advantage of China's moves towards increased currency flexibility, according to a note by US-based Hedge Fund Research.

Asian hedge funds experienced net inflows of $360 million in the second quarter, reversing the net asset outflows experienced in the previous quarter, according to the study.

But the study found that the total capital invested in Asian-themed hedge funds actually fell to $74.4 billion, as difficult market conditions more than offset the impact of new investor capital.

The report found that investors allocated broadly across a number of strategies, and in both emerging and developed Asian economies.

Event Driven strategies (which focus on distressed, shareholder activist, merger Arbitrage and other special situations) received the majority of new investor capital, followed by equity hedge funds, and macro funds focusing on global currency, commodity and interest rate positions.

By geographic focus, the report found that investors shifted assets from dedicated Emerging Asia funds into funds focused on Japan and broadly across Pan-Asia.

The report found that Asian equity hedge funds outperformed equity hedge funds globally, but Asian focused relative value arbitrage funds significantly underperformed their global peers.

Finally, the report noted that Asian themed funds are geared significantly higher than their US and European counterparts, with the Asian region having the greatest percentage of funds employing between 2-5 and 5-10 times investment capital.