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Emerging Market Hedge Funds Reach Record Highs

Investors committed more money to emerging market hedge funds than they withdrew for the first time since 2015 as improving market conditions spark investor interest across asset classes.

  • Alicia McElhaney

As investors return to emerging markets, hedge funds targeting these economies have surged to record highs.

Capital managed by emerging market hedge funds rose to an all-time high for the fourth consecutive quarter at the end of June, increasing to $213.3 billion, according to hedge fund data firm HFR.

This latest uptick in assets under management came as investors committed more money to emerging markets hedge funds than they took out for the first time since 2015.

“Inflows returned to emerging market hedge funds after eight quarters of outflows as investor risk tolerance increased, driven by outstanding performance and regional equity market outperformance concentrated in emerging Asia,” said Kenneth Heinz, president of HFR, in a company statement.

During the second quarter of 2017, emerging market hedge funds received $800 million in net new inflows, according to HFR. Overall, emerging market funds grew by $7.5 billion, driven largely by positive performance as emerging markets, especially China and India, improve.

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The inflows to emerging market hedge funds reflect rising interest in emerging markets more broadly. According to a recent report from eVestment, institutional assets under management in both active and passive long-only emerging markets strategies have also hit all-time highs.

Active long-only assets under management totaled $767.2 billion as of June 2017, while passive strategies grew to $214.4 billion.

Heinz said that ongoing equity and currency market adjustments, including a recent surge in China’s currency, the Renminbi, were likely to contribute to “increased opportunities” for emerging market managers going forward.

So far, managers focused on China and India have led 2017 emerging market hedge fund performance, according to HFR. The firm’s India hedge fund index increased 3.6 percent in July, for a year-to-date return of roughly 25 percent.

Meanwhile, HFR’s China hedge funds index earned 3.5 percent in July and 19.3 percent year-to-date. In total, hedge fund capital invested in emerging Asia-focused hedge funds increased to $52.5 billion.