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Key Trends in Asian Hedge Funds (March 2022)

The Eurekahedge Latin American Hedge Fund Index was down -3.02% year-to-date as of January 2022, outperforming the underlying equity market as represented by the MSCI AC Asia Pacific IMI, which retreated -4.16% over the same period. In 2020, the Eurekahedge Asian Hedge Fund Index suffered significant losses in the first quarter of the year as news of the rapidly spreading coronavirus hammered equity markets globally, resulting in the index declining by -8.72% in the first quarter of the year. The coronavirus was later declared by the World Health Organization (WHO) as a pandemic. The spread of the virus prompted government authorities to impose lockdowns which forced businesses deemed to be non-essential to shut down operations, resulting in a surge in unemployment globally. The CSI 300 and Hang Seng indexes were severely impacted, recording declines of -10.02% and -16.27% respectively during the first quarter of 2020. Over the subsequent three quarters, the Eurekahedge Asian Hedge Fund Index staged a strong rebound, gaining 29.46% over the nine-month period as major Asian economies such as China managed to bring the spread of the coronavirus under better control. Moving into 2021, Asian hedge funds recorded a 7.46% return over the first half of the year, buoyed by the rapid rollout of COVID-19 vaccines and resulting optimism that the pandemic could soon be over. Asian hedge funds retreated -1.69% over the second half of the year, triggered by growing concerns over a multitude of factors such as the Chinese developer Evergrande’s debt crisis, Chinese government regulation, the emergence of the highly contagious Omicron variant as well as tighter monetary policy by global central banks. Nevertheless, Asian hedge funds generated a positive return of 5.77% in 2021, outperforming the MSCI AC Asia Pacific IMI (Local) which returned 3.49% over the same period. As of January 2022, the Eurekahedge Asian Hedge Fund Index has declined by -3.02% as risk-off sentiment grew after Russia amassed more than 190,000 soldiers near the border with Ukraine, sparking fears of a Russian invasion that would be the largest assault on a European state since the end of World War II.

Figure 1: Industry growth since 1999

Figure 1 above provides the industry growth of Asian hedge funds since 2000. As of the end of January 2022, the total assets managed by Asian hedge funds stood at US$212.9 billion, while the industry population stood at 1,451 hedge funds. The number of hedge funds in the region has mostly stagnated between 2014 and 2020, even though the industry assets have grown by US$39.0 billion during the period. We can also observe that the Asian hedge fund industry was hit particularly hard by the 2008 financial crisis and it was not until the end of 2017 that the industry managed to recover the lost assets and surpass the previous industry AUM peak attained at the end of 2007. 2018 witnessed the industry suffering a US$10.6 billion contraction, as the industry recorded three consecutive quarters of AUM decline from Q2 to Q4 which offset the US$3.4 billion AUM growth in Q1.

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