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2017 Overview: Key Trend in Asian Hedge Funds

Introduction

Asian hedge funds ended 2017 with their strongest performance recorded since 2009, as reflected by the 16.94% gain posted by the Eurekahedge Asian Hedge Fund Index, which is more than double the 8.25% gain generated by their global peers represented by the Eurekahedge Hedge Fund Index over 2017. Incredible stock market rallies across the continent, especially in Greater China and India, combined with strong economic growth have greatly contributed to the performance of the hedge fund managers with exposure toward the region.

As of February 2018, Asian hedge funds managed to gain 1.12% year-to-date on average, still outperforming their global peers which generated 0.42% over the first two months of 2018. While January had been a very strong month for hedge funds around the globe with most major equity indices riding on their momentum from 2017, February saw the return of market volatilities. In the first few days of February, equity markets slumped, starting with major indices in the US posting some of their worst daily losses over the last few years, sending the CBOE implied volatility index VIX to more than double over the weekend preceding February 5. Asian equity markets immediately followed suit with the Hang Seng and Nikkei 225 indices posting remarkable losses on February 6, as major selloff spread across the globe. On the other hand, the US 10 year treasury yield broke the 2.80% level in early February, and peaked at 2.95% nearing month-end, pushing the US dollar up against most emerging market currencies, as investors shifted their positions from equities to bonds during the volatile market condition.

Figure 1a: Industry growth over the years
 Asian hedge fund industry growth over the years

Figure 1 provides the industry growth of Asian hedge funds since 2000. As at end-February 2018, the total assets managed by Asian hedge funds stood at US$198.8 billion, while the industry population stood at 1,469 hedge funds. While the number of hedge funds in the region has mostly stagnated since the end of 2014, industry assets grew noticeably over the last two years, owing to the strong performance and investor allocations in 2017, following the weak performance of Asian hedge funds in the preceding year. From the figure above we can also observe that the 2008 financial crisis hit the Asian hedge fund industry particularly hard, and it was not until last year that the industry managed to recover the lost assets and surpass the previous industry assets under management (AUM) peak by the end of 2007.

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