Research

2016 Overview: Key Trends in Asian Hedge Funds

Introduction

The hedge fund industry in Asia witnessed a difficult 2016 with investor redemptions a main contributor to the lethargy in asset base. Investors redeemed US$3.4 billion during the course of the year, with modest performance-based gains of US$1.6 billion recorded. Indeed, hedge funds globally have had a challenging year with strong redemption pressure from investors, and Asia as a whole was not isolated from this outlook. As of end-2016, the Eurekahedge Asian Hedge Fund Index was up a meagre 0.01% underperforming underlying markets which gained 1.24% over the same period. Investor sentiments somewhat improved going into 2017, with year-to-date net inflows coming in at US$1.5 billion. Performance-based gains were also up US$1.9 billion over the same period, bringing the current assets under management (AUM) for the Asian hedge fund industry to US$173 billion.

Figure 1a: Industry growth since 1999

  Industry growth sicne 1999

Figure 1a above shows the industry growth of Asian hedge funds since 1999. In the pre-financial crisis era, the Asian hedge fund industry saw the steepest climb over the next eight years, starting from 1999. 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.

During the Eurozone debt crisis in 2011, ensuing market uncertainty had also affected the performance of Asian managers with their asset base contracting by US$4.8 billion during the year. While performance figures improved in 2012 with gains of US$7.0 billion, asset base saw a modest growth of US$2.7 billion as gains were erased by strong redemption pressure from investors.

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