Hedge Funds Pour Into Emerging Markets, But Performance Lags

Hedge fund investors have stashed a record sum in emerging markets, according to a new report. Unfortunately, many investors (such as the legendary Mark Mobius, pictured, and his Templeton Emerging Market Fund) haven’t been rewarded and emerging market returns continue to lag the market.


Hedge fund investors have stashed a record sum in emerging markets, according to a new report from Chicago hedge fund data gathering firm HFR.

Total assets invested in emerging markets hedge funds topped $121 billion at the end of the first quarter, exceeding the record level of $117 billion set in 2007.

HFR says asset flows were especially directed toward emerging Asia and Russia.

It notes assets in Emerging Markets climbed more than 6.5 percent in the first quarter, which includes nearly $2.3 billion from an inflow of new capital, concentrated primarily in emerging Asia, and $5.1 billion from performance-related gains, mostly concentrated in Russia and multi-EM regions.

Too bad many investors who discovered this asset class in recent months haven’t been rewarded.


Sure, Russia/Eastern Europe-focused funds were up 8.22 percent through April, according to HFR. And assets directed to Latin Americas funds climbed 15 percent in the first quarter even as the HFRX Latin America Index gained 3.6 percent through April. But HFR notes that The HFRI Emerging Markets (Total) Index gained a meager 0.96 percent in the first quarter and climbed only an additional 1.83 percent in April, bringing year-to-date gains to just 2.80 percent.

Keep in mind that the S&P 500 was up about 9 percent through April and 7.8 percent through May.

Funds concentrating on the Middle East were down 4.34 percent through in the first quarter, before climbing 1.4 percent in April.

The HFRX Asia ex-Japan Index gained 2.81 percent in April, finally putting the sector into the black for the year.

Many individual high profile emerging markets funds have fared even worse.

For example, OZ Asia Master Fund, Ltd. lost 1.71 percent in May and is now only up 0.52 percent for the year.

Through May 25, the Templeton Emerging Market Fund Ltd, the roughly $1.2 billion fund managed by legendary Mark Mobius, was down more than 3 percent for the year.

Through May 18, SR Global Fund-Emerging Markets, a roughly $2.6 billion fund managed by London-based Sloane Robinson’s Richard Chenevix-Trench, was down 2.9 percent for the month and up just 1.3 percent for the year. The much smaller SR Phoenicia, another Sloane Robinson fund, was down 1.5 percent for the year.

Joho Fund, a $2 billion Asia hedge fund managed by Tiger Cub Robert Karr, was only up 2 percent through May 20.

A few smaller Asian funds did fare fairly well. The Pinpoint China Fund, managed by Quiang Wang, was up 10 percent through May 13 while the Nezu Cyclicals Fund was up 7 percent through May 20.

And they say the small investor chases performance.