Key Trends in Asian Hedge Funds (February 2021)

The Eurekahedge Asian Hedge Fund Index was up 17.64% year-to-date as of December 2020, outperforming the underlying equity market as represented by the MSCI AC Asia Pacific IMI, which gained 12.23% over the same period. In 2019, Asian hedge funds registered a 10.12% return, supported by the strong performance of the underlying equity market on the back of positive geopolitical developments and accommodative central bank policies. Moving into 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 suffering a 9.04% loss 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 forced 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 29.29% over the nine-month period as major Asian economies such as China managed to bring the spread of the coronavirus under better control. Adding fuel to the fire, the successful election of Democrat Joe Biden as the 46th president of the United States as well as the announcement of the better-than-expected efficacy of several COVID-19 vaccine candidates led to a surge in risk-on sentiment in November and December 2020.

Equity markets in the region reacted positively to this development with the Hang Seng Index, Nikkei 225 and Kospi gaining 9.27%, 15.04% and 14.30% respectively in November 2020 alone. These positive developments supported the performance of Asian hedge funds, allowing them to recoup all of their losses incurred in the first quarter of 2020 and end the year with a strong double-digit return of 17.64%.

Figure 1: Industry growth since 1999

Figure 1 provides the industry growth of Asian hedge funds since 2000. As of end- December 2020, the total assets managed by Asian hedge funds stood at US$199.7 billion, while the industry population stood at 1,461 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.

Despite suffering a US$10.6 billion contraction in 2018, the Asian hedge fund industry has managed to stage a recovery, attaining an all-time high of US$199.7 billion by the end of December 2020.

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