Investor capital continued to pour into the Asian hedge fund industry in late 2013 and early 2014, with record inflows and performance driving total investor capital to surpass the record level set in 2007, prior to the 2008 Financial Crisis, according to the HFR Asian Hedge Fund Industry Report, by HFR.
Total capital invested in the Asian hedge fund industry grew to US$112.3 billion (Japanese ¥: 11.48 trillion; Chinese Renminbi: 680.9 billion).
Asset growth for both 4Q and January 2014 was driven by investor allocations, as well as performance gains. Investors allocated US$4.2 billion (Japanese ¥: 430 billion; Chinese Renminbi: 25.46 billion) of new capital to the region’s hedge funds in 4Q, the highest quarterly inflows since HFR began tracking in 1Q08, bringing full year 2013 inflows to US$10.5 billion (Japanese ¥: 1.07 trillion; Chinese Renminbi: 63.7 billion),also a calendar year record.
Inflows by hedge fund strategy were dominated by Equity Hedge and Event Driven, which typically exhibit high directional beta to Asian equity and credit markets. Asian Equity Hedge and Event Driven, including Activist and Distressed strategies, experienced inflows of US$2.5 billion and US$1.4 billion in 4Q, respectively, while Macro, including CTA, and fixed income based Relative Value Arbitrage experienced smaller inflows. For the full year 2013, investors allocated US$6.9 billion to Asian Equity Hedge and US$2.2 billion to Asian Event Driven.
Strong performance gains for Asian hedge funds accelerated in 4Q13, with the HFRX Japan Index gaining +6%, ending FY13 up +32.8%, only below slightly below the record gain of +33.1% from 2005.
HFRX China Index, which gained +7.8% in 4Q and +19% for FY 2013, exhibited strong negative correlation to the Shanghai Composite, which declined of – 6.75% for the year. The FY 2013 gain for the HFRX China Index was the best full year performance since the Index gained +50.4% in 2009.
Asian capital inflows by region were led by allocations into Japanese-focused hedge funds. For 4Q13, investors allocated US$1.7, US$1.4 and US$1.1 billion, respectively, to pan-Asian, Japan and Emerging Asian hedge fund strategies. For the full year 2013, investors allocated US$2.9, US$4.5 and US$3.0 billion to each of these regions, respectively.
Kenneth J. Heinz, president of HFR, said: "2013 was an exceptional year for the Asian hedge fund industry, posting strong performance gains across the region as assets surpassed the pre-financial crisis peak, both despite divergent equity market trends across developed and emerging Asia. The Asian hedge fund industry has now emerged as the preferred mechanism for both global and Asian investors to participate in the exciting growth opportunities while mitigating complex risks associated with quantitative easing, currency devaluation or prospective RMB appreciation and structural concerns regarding banking institutions. Despite EM-centric currency and equity volatility to begin 2014, investors are likely to increase allocations to Asian hedge funds as these themes evolve in 1H14."