Emerging markets hedge funds lead industry into second half of 2012

Date: Tuesday, August 28, 2012
Author: Emily Perryman, HedgeWeek

The number of emerging markets hedge funds reached a record high in quarter two 2012, overcoming the headwinds of volatile performance and investor redemptions, according to the latest HFR Emerging Markets Hedge Fund Industry Report from Hedge Fund Research.

The total number of EM hedge funds increased to 1,073 funds, representing approximately 14 per cent of all hedge funds and an increase of 3.5 per cent since 2Q 2011.

Fundamental growth strategies, now account for almost 60 per cent of total emerging markets hedge fund AUM, but other strategies are becoming popular, particularly currencies, fixed income and more sophisticated equity hedge strategies, according to the report.

Macro hedge fund strategies, including discretionary and quantitative or systematic CTA strategies, now account for nearly 13 per cent of emerging markets hedge funds, an increase of almost two per cent year-on-year, while the fixed income-based relative value arbitrage strategies' AUM has grown to nearly 10 per cent of total emerging markets AUM.

Emerging markets hedge funds delivered strong performance through the first seven months of 2012, with funds focused on Latin America posting the best returns of the regional emerging markets indexes. The HFRI EM: Latin America Index gained 3.9 per cent year-to-date to the end of July, while over the same period Brazil's Bovespa Index was in negative territory.

The HFRX Russia/Eastern Europe Index registered a gain of 2.3 per cent YTD to the end of July, although Russian equities declined. The HFRX MENA Index gained 2.7 per cent YTDin the same period, in line with Middle East and North African equity markets.

The HFRX Emerging Markets Composite Index, launched in July and including exposures across all emerging markets regions and hedge fund strategies, gained more than 5.45 per cent YTD to 21 August. The HFRI Emerging Markets Total Index however, a fund-weighted composite of all emerging markets funds, fell 6.05 per cent in the second quarter, offsetting gains from the previous quarter.

Despite strong performance and growth in the number of emerging market-focused hedge funds, total emerging markets hedge fund AUM fell three per cent from the record hit at the end of the first quarter.