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2019 Key Trends in Emerging Market Hedge Funds


Emerging market mandated hedge funds were up 6.33% year-to-date, recovering the losses they suffered in 2018 on the back of the accommodative stance of the Fed and the market optimism towards the US-China trade negotiations, which boosted the equity markets of the developing economies over the year. During the first quarter of the year, the Federal Reserve completely shifted their stance from restrictive to accommodative monetary policy following the multiple equity markets sell-offs in 2018 and strong criticisms from the US President. Meanwhile, the market showed optimism towards the US-China trade talks as the two economic powerhouses agreed to resume the negotiations after the US President decided to postpone additional tariffs on the remaining US$300 billion of Chinese imported goods in August. The Shenzhen and Shanghai Composites were up 25.82% and 16.49% as of September year-to-date respectively. Over in India, the region is facing challenges surrounding liquidity risk owing to the default of the two non-banking financial companies in the country which dampened investors’ confidence. As a result, India mandated hedge funds underperformed their peers, with 1.91% loss over the same period.
Figure 1 below shows the comparative growth of year-end assets under management (AUM) of key emerging mandates: Latin America, India and Greater China. Assets for Greater China-focused hedge funds grew rapidly following the 2008 financial crisis, outpacing the asset growth of Latin American hedge funds. AUM for Greater China hedge funds stood at US$27.3 billion at the end of 2015, and declined to US$25.9 billion as of the end of 2016, as fund managers struggled under the region’s equity market performance. Throughout 2017, they managed to bounce back and recorded an exceptional performance which has not been seen since 1999 by posting 12 consecutive months of gains in a year, thanks to underlying equity market performance. In 2018, the mandate declined their assets from US$29.3 in 2017 to US$28.0 billion as a result of the US-China trade war causing an equity market sell-off. Going into 2019, AUM for Greater China increased to $29.1 billion as a result of strong equity market performance of the region throughout the year.

While overseeing a comparatively small asset base, Indian hedge fund managers have also steadily grown their assets, especially from 2012 onward as a response to the post-Modi market rally. As of September 2019, Indian hedge fund managers collectively oversee US$4.7 billion in assets. Over in Latin America, the assets managed by hedge funds in the region grew by nearly 20% throughout 2017, owing to strong investor allocations and performance-based growths, as Latin American fund managers posted exceptional returns throughout the year. Despite the numerous challenges faced by the region’s economies, Latin American hedge fund industry AUM stood at US$61.5 billion as of September 2019, marginally down from the end of 2018 figure of US$61.7 billion.

Figure 1: Growth in assets under management of key emerging mandates

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