Emerging markets hedge funds experience further capital outflows

Date: Monday, August 23, 2010
Author: Joanne Harris, HedgeFunds Review

Hedge funds focusing on emerging markets experienced net outflows of $1.5 billion and performance losses of $1.7 billion in the second quarter of 2010, according to data from Hedge Fund Research.

Assets under management (AUM) in emerging markets funds now stand at just under $95 billion after investors withdrew capital from the sector in seven quarters of the last eight. In 2007 AUM stood at a peak of $117 billion.

Hedge Fund Research estimated there were 1,019 emerging markets-focused hedge funds at the end of the second quarter of 2010 compared with 1,046 in 2007.

Outflows reflected a "significant decoupling from the overall hedge fund industry", Hedge Fund Research reported. The industry as a whole had net inflows in the first half of the year but investors have withdrawn more than $2 billion from emerging markets hedge funds year to date.

Redemptions were concentrated in funds focusing on Russia and emerging Asia. New capital was allocated to funds investing in Latin America and the Middle East.

Funds focusing on multiple emerging markets are now the biggest group, representing 39.7% of emerging markets AUM. This is a turnaround compared with the second quarter of 2009 when Asia was the main regional focus. Asian-focused funds represent 33.5% of AUM but 46% of the number of funds.

Emerging markets equity hedge funds had significant net outflows of $1.8 billion, while macro emerging markets funds saw net inflows of $320 million.

Other than managers based in the UK and US, the greatest concentration of managers focusing on emerging markets is in Hong Kong and China with over a quarter (27.6%) of non-UK or US managers. Brazil (14.2%) and Australia (11.3%) are also significant management jurisdictions.