The strong inflows into Asian hedge funds that began towards the end of 2013 continued into the first quarter of 2014, driving total capital invested in the Asian hedge fund industry to a second consecutive quarterly record, according to the HFR Asian Hedge Fund Industry Report, by HFR.
Investors allocated over $2bn in net new capital to Asian hedge funds in 1Q14, bringing total Asian hedge fund industry capital to $114bn (Japanese ¥: 11.63 trillion; Chinese Renminbi: 713 billion).
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As reported earlier, global hedge fund industry assets also increased to a new record in 1Q14, exceeding $2.7 trillion (Japanese ¥: 276 trillion; Chinese Renminbi: 16.9 trillion), on inflows of $26 billion. Asian hedge fund performance gains were led by the volatile HFRX India Index, which posted a gain of +5.2 percent for the first quarter; the Index gained nearly +10.5 percent in February and March after declining in January. Similarly, the HFRX Korea Index gained +1.9 percent for 1Q14, despite a 1Q decline for the Kospi.
Broadly across Emerging Asia, the HFRI Emerging Markets: Asia ex-Japan Index gained +0.6 percent in 1Q, following the gain of +10.5 percent for 2013. Chinese equities posted declines of nearly 4 percent for the quarter, while the Renminbi fell to over 6.25 to the US dollar. Investors allocated $2.5 billion in net new capital to hedge funds investing in Emerging Asia, while allocating an additional $900 million to hedge funds investing pan-Asia.
Japanese focused hedge funds recorded a decline for the quarter, with the HFRX Japan Index falling -1.6 percent as the Yen strengthened and the Nikkei 225 declined ever more sharply. In 2013, Japan led all hedge funds globally with a gain of +32.8 percent and attracted a record $4.5 billion of annual inflows; investors redeemed $1.4 billion from Japanese hedge funds in 1Q14. Mirroring strong trends observed across the global industry, Event Driven funds located in Asia posted a narrow gain of +0.5 percent YTD for 2014, leading other Asian-located strategies.
Event Driven funds employ strategies such as Distressed, Merger Arbitrage, Special Situations and Shareholder Activist, all of which attracted investor capital in recent quarters as activist investors became increasingly involved in global situations including Sony, Apple, Herbalife and JC Penny, pressuring management to improve shareholder returns. Event Driven funds have been increasingly active in recent and anticipated IPOs, including Asian headquartered companies Weibo and Alibaba. Globally, the HFRI Event Driven Index gained +1.8 percent in 1Q14 after posting a gain +12.5 percent in 2013, as investors allocated nearly $30 billion to the strategy in 2013 and an additional $4 billion in 1Q14.
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By GlobalData"As the global M&A boom accelerates with new cross-border transactions and activist inversion trades, the number of Asian hedge funds employing Event Driven and Macro strategies has increased in the last year, with these including not only Currency & Commodity, but Activist, Distressed, Quant/CTA and High Frequency Trading strategies," stated Kenneth J. Heinz, President of HFR.
"Attracted by the recent Weibo IPO and the widely anticipated Alibaba listing, sophisticated global hedge funds continue to identify opportunities, both long and short, in Asian equity, credit and currency markets. Hedge funds continue to actively position for progressive policy developments, as well as continued strategic M & A involving Asian corporations, with both of these serving as catalysts for monetizing opportunities created by increased market efficiency in coming quarters."
