Research

2016 Key Trends in Asian Hedge Funds

Introduction

Global financial markets have been peppered with a series of events adding to volatile conditions in the trading environment. Within Asia, monetary stimulus continues to be a main theme as global events weigh in on investor sentiment. The fallout from Brexit; though largely contained for the moment, and the US Federal Reserve’s unconfident march towards policy normalisation will be much watched for as 2016 draws to a close.

Indeed with regional and global developments in the background, the Asian hedge fund industry had a difficult start to the year. The industry’s assets under management (AUM) declined by US$0.7 billion in the first seven months of 2016, the lowest year-to-date decline on record since 2010. Over the past seven months, the pace of investor allocations were slow and net inflows stood at a modest US$0.5 billion. Investor redemptions have picked up pace over the past couple of months, with managers witnessing three consecutive months of outflows totalling US$2.6 billion in the period ending July. Performance-based figures were also hard to come by for Asian managers, who posted losses of US$1.2 billion over the same period. The Asian hedge fund industry recorded modest growth in asset base in 2016, bring the industry’s total AUM to US$170.7 billion, overseen by 1,430 funds.

Among geographic mandates, India-focused funds topped the table, up 6.49% year-to-date. On the other hand, performance for Greater China focused hedge funds languished over the same period, declining 4.55% year-to-date. Asian relative value hedge funds were up 6.61% year-to-date, topping the table among strategic mandates while performance was lacklustre for Asian event driven hedge funds, which declined 2.32% over the same period.

Figure 1a: Industry growth since 1999
  Asian hedge fund industry growth 1999 to August 2016

In the pre-financial crisis era, the Asian hedge fund industry saw the steepest climb over the next eight years, starting from 1999. Assets under management (AUM) stood at US$14 billion as at end-1999 and reached US$176 billion by end-2007. Fund population also grew in tandem over the same period of time, from 145 funds in 1999 to reach 1,237 funds as at end-2007. However, gains realised over this period were partially reversed by the global financial crisis, resulting in a spate of fund liquidations as managers struggled to deal with negative returns and strong redemptions from investors. April 2009 saw AUM declining to a US$104.8 billion low before the industry witnessed a rebound on the back of rallying equity markets and positive asset flows in the second half of 2009.

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