Asia hedge funds net record quarter inflow of $3.6 billion

May 5, 2011

HFR numbers show the Asian hedge-fund industry has received the largest net inflow of capital in any quarter on record.

Global investors in the first quarter of 2011 allocated a record amount of new capital to Asia-focused hedge funds.

According to HFR, the Chicago-based research firm, investors allocated over $3.6 billion to these funds in Q1. Coupled with a rise in portfolio valuations, Asia hedge funds recorded a net rise in assets of $4.6 billion. This takes the industry total size to $88.1 billion, the highest level it's been since the peak of spring 2008, when Asia strategies' AUM reached $111.4 billion.

The number of new hedge funds dedicated to Asia has also hit a recent high, of 1,055. The all-time high for the number of Asia hedge funds is 1,676, in 2007.

China (including Hong Kong) and Singapore are where the growth in new funds is being set up. Today, China accounts for 26.29% of Asia hedge funds, versus 23.12% a year ago; similarly, 13.49% of funds are located in Singapore today, up from 11.29% a year ago.

In fact, China/Hong Kong has now overtaken the United States as the leading location for Asia hedge funds. The US share fell from 26.88% to 24.87% of such products.

Australia also saw a modest decline in share, while the United Kingdom and Japan remained roughly flat.

The story by strategy type is consistent: 74% of Asia hedge funds are equity hedge, compared to 47% of global funds. Relative value (14%), event-driven (7%) and macro (5%) account for the rest. The portion in AUM terms is similar.

Flows to Asia strategies represent over 10% of net flows to hedge funds worldwide (it says globally the industry took in $32 billion in the first three months of 2011). HFR estimates the industry recently surpassed the $2 trillion AUM mark.

This follows on a year of strong performance. In 2010, HFR's Emerging Market Asia ex-Japan index returned 10.83%, its developed Asia ex-Japan index returned 10.38%, and its global emerging market index returned 11.44%. Even its Japan hedge-fund index returned over 8%, versus a negative -3% drop in the Nikkei 225 Index.

For Q1 2011, performance has been led by the HFR Fund Weighted Composite Index, with 1.7% performance. Its emerging-markets index has also returned 1.02%.

However, Asia ex-Japan funds have recorded net losses in Q1: the emerging-markets version returned -1.72% and the developed-market version lost -0.25%. However, both indices posted gains for the month of March.