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In 1998, as much of Asia teetered on economic and financial collapse, Robert Appleby, a managing director at French bank CrZdit Agricole Indosuez, decided to join a partner launching a hedge fund in Hong Kong. To many of his friends and colleagues, it seemed like a crazy move. Markets in Hong Kong, Seoul and Jakarta had tanked, currencies such as the Thai baht and the Filipino peso were in free fall, and ratings on Asian countries' debt were being downgraded to junk bond status.

"Nothing on that scale had ever happened before, and that was the time we set up our business," recalls Appleby, who is chief investment officer of that firm, Asia Debt Management Hong Kong, which has since become one of the region's biggest hedge funds, with more than $1.4 billion invested largely in distressed debt. "Many said it was foolhardy. I tend to agree, but in retrospect that was the right time to get involved in a market no one had any clue about."

Less than a decade later, Asia's stunning recovery has attracted enormous amounts of capital and spurred a historic shift in the hedge fund industry. Since 2002 the number of Asian hedge funds has quadrupled, to more than 700, and the assets they manage have surged nearly tenfold, to about $120 billion, according to information compiled from two Singapore-based Asian hedge fund manager research and consulting firms, Eurekahedge and GFIA.