HFR Asian Hedge Fund Industry Report for Q2 2011

New capital inflows offset performance-based declines in 2Q11; Number of funds investing in India, South Korea increase

The Asian hedge fund industry continued to attract new investor capital in 2Q11 despite increasing inflationary pressures, volatile commodity and global equity markets, and uncertainty regarding both U.S. and European sovereign debt according to data released today by HFR (Hedge Fund Research, Inc.), the leading provider of information on and analysis of the global hedge fund industry. Investors allocated $2.6 billion of new capital to Asia-focused hedge funds in 2Q11, offsetting a performance-based decline and increasing the total capital invested in Asia-focused funds to nearly $90 billion (7 trillion JPY; 603 billion Chinese Yuan).

Asia-focused hedge funds generally posted modest declines for the quarter, with the HFRX China Index and the HFRX Japan Index declining by -1.95 percent and -0.42 percent, respectively, for the quarter. Year to date, the HFRX Japan Index has gained +0.08 percent while the HFRX Asia with Japan Index was essentially flat, posting a narrow decline of -0.01 percent.

Growth, Focus and Concentration in Asian hedge funds

The estimated number of Asia-focused hedge funds increased modestly during the quarter to 1,067, representing nearly 15 percent of the global hedge fund industry. While many Asian-focused funds invest broadly across the region, the number of funds investing primarily in China (32.9 percent), India (16.8 percent) and South Korea (4.2 percent) all experienced increases in the latest quarter. Geographically by firm location, the number of Asian hedge funds located in China and Singapore increased in 2Q11, while the number located in Japan and Australia declined for the quarter. The asset concentration in Asia-focused hedge funds also increased in 2Q11, with nearly 62 percent of the capital invested in funds with greater than $500 million, approaching the concentration level of the broader hedge fund industry.

“Powerful and pervasive trends dominated both the Asian hedge fund industry and global financial markets in the second quarter, but the impact of these trends was felt in different ways across geographic regions, particularly in Asia,” said Kenneth J. Heinz, President of HFR. “Large disparities between developed and emerging markets, including inflationary pressures, commodity demand dynamics, and currency risk, impacted investors during the quarter. Global investors are allocating to the Asian hedge fund industry not only as a means to insulate themselves from the volatility of these trends but also to position their portfolios to benefit from for uncorrelated opportunities in coming quarters.”