The clash between Russia and Ukraine over Crimea and the continued violence in the region, leading to the worst East-West relations since the end of the Cold War, has also proven a bitter pill for hedge funds exposed to the region, new data shows.

The clash between Russia and Ukraine over Crimea and the continued violence in the region, leading to the worst East-West relations since the end of the Cold War, has also proven a bitter pill for hedge funds exposed to the region, new data shows.

Funds that focus on investing in Russia and Eastern Europe lost money since the start of the year, with Russian equity, currency, sovereign bond and commodity markets taking a bath, according to Hedge Fund Research, the Chicago-based firm.  

The HFRI EM: Russia/Eastern Europe Index fell 9.7 per cent year-to-date through April, the worst decline since the Index lost 10.5 per cent in May 2012, according to the latest HFR Emerging Markets Hedge Fund Industry Report.

Total capital invested in Russian hedge funds declined to $25.1 billion as of the end of the first quarter, with performance-based losses offsetting an investor inflow of nearly $300 million, which arrived in spite of the ongoing tumult in Ukraine. As of the end of Q1, approximately 170 funds invest with a dedicated focus on Russia and Eastern Europe, with these funds having posted an average gain of 4.4 and 9.3 per cent in 2012 and 2013, respectively.

Despite the steep losses in Russia, total hedge fund capital invested in emerging markets rose to $175.6 billion, a seventh consecutive quarterly record, as inflows into emerging Asia, Middle East and multi-EM offsetting performance-based asset declines in Russia and Latin America.

Investors allocated $3.4 billion of new capital to hedge funds as emerging market hedge fund assets increased by nearly $5 billion during the quarter, the organisation said.

The HFRI Emerging Markets (Total) Index, a broad-based emerging market composite including EM-focused hedge funds across all regions, registered a decline of 1.0 per cent YTD through April, with Russia-focused funds representing approximately 15 per cent of the index composition.

Hedge funds investing in India and the Middle East have posted the strongest performance so far this year, with the HFRI India Index gaining 10.1 per cent through April, while the HFRI MENA Index was up 5.8 per cent over the same period, extending the MENA gain of 21.8 per cent from 2013.

Nearly 50 funds focus on investing in the MENA region, collectively managing nearly $4.0 billion as of the end of the first quarter, the report said.