Emerging markets hedge funds grow in number and sophistication

Emerging markets hedge funds grew in number during Q2 2012. Hedge Fund Research’s emerging markets sub-indexes posted strong performance, but the composite index declined, resulting in a drop in AUM.

The number of emerging markets hedge funds reached an all-time high in the second quarter. Despite market volatility, regional emerging markets funds delivered strong performance.

At the end of the second quarter, there were 1,073 emerging markets hedge funds, around 14% of all hedge funds and an increase of 3.5% on the end of the second quarter 2011, reports Hedge Fund Research.

Although emerging markets hedge fund assets under management (AUM) are mainly focused on fundamental growth strategies, which now account for almost 60% of total emerging markets AUM, other strategies are becoming popular, particularly currencies, fixed income and more sophisticated equity hedge strategies, according to Hedge Fund Research.

Macro hedge fund strategies, including discretionary and quantitative or systematic CTA strategies, now account for nearly 13% of emerging markets hedge funds, an increase of almost 2% year-on-year.

Fixed-income-based relative value arbitrage strategies’ AUM has grown to nearly 10% of total emerging markets AUM.

Emerging markets hedge funds have delivered strong performance through the first seven months of 2012. Funds focused on Latin America have posted the best returns of the regional emerging markets indexes. The HFRI EM: Latin America Index gained 3.9% year-to-date (YTD) through July. In the same period, Brazil’s Bovespa Index experienced declines.

The HFRX Russia/Eastern Europe Index registered a gain of 2.3% YTD through July, although Russian equities declined. The HFRX MENA Index gained 2.7% YTD through July, 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% YTD through August 21.

However, the HFRI Emerging Markets Total Index, a fund-weighted composite of all emerging markets funds, fell 6.05% 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 3% from the record hit at the end of the first quarter.

Assets declined $3.7 billion to finish the second quarter at $123.5 billion, according to Hedge Fund Research. This was largely due to performance.

Investor redemptions for the quarter only reached around 0.2% of emerging markets hedge fund AUM at $256 million.

 

This article first appeared on Hedge Funds Review

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