Three years ago Roland Nash, one of the most astute economists and investment strategists in Russia, quit Moscow-based investment bank Renaissance Capital to join tiny Verno Capital, a specialist start-up focused on emerging markets.

“We’ve got lots of new money looking at emerging markets — the money that used to be invested into the U.S. or European countries,” Nash said at the time in an interview with Russian television network RT. Since then, the flows have only gotten greater.

In the quarter ended December 2012, according to Chicago-based hedge data firm HFR, hedge fund capital invested in emerging markets rose $11.2 billion to a record $139 billion. HFR’s HFRI Emerging Markets Index gained more than 10 percent for all of 2012, including a gain of 4.8 percent in the fourth quarter, with contributions across each of the BRIC economies, representing an increase of R$272 billion in Brazil, RUB 4.2 trillion in Russia, 7.5 trillion rupees in India and 867 billion yuan in China.

Easy monetary policy in developed markets drove the emerging-markets gains and capital flows, says Kenneth Heinz, president of HFR. Indeed, net inflows into emerging-markets-hedge funds accounted for $3 billion of the net $3.4 billion that went into the global hedge fund industry, reports HFR.

Nash is confident that the flow will continue. “You’re looking at a group that is 55 percent of the world’s [population], growing to 75 percent. With emerging markets performing the way they have and only 5 percent of institutional assets allocated to the emerging markets, I think we’ve broken the mindset of asset managers,” says Nash. And once the mindset is broken and managers have made that leap of understanding, “there should be even bigger inflows.”

Private capital inflows into emerging markets are also expected to rise, to $1.12 trillion in 2013, up from $1.08 trillion in 2012, according to the Institute of International Finance. The Washington, DC–based trade group for financial institutions predicts private flows will increase to $1.15 trillion in 2014. The flow of private capital is still lower than in the period from 2005 to 2007, but monetary conditions in mature economies and favorable growth in emerging economies should continue the upsurge, the IIF predicts.

Quantitative easing and competitive devaluation are pulling investors further out on the risk curve so that they are comfortable with the risks of the emerging markets and the concomitant rewards, explains Michael Tobin, a veteran emerging-markets hedge fund marketer in New York. “The perception is that growth in the developed markets is flatlining or dead, and anemic in the U.S.,” Tobin says. Many emerging-markets economies that have underperformed in the past are due for a rally, he adds.