Not surprisingly after big falls in its markets, Russia-focused hedge funds were mauled last year while Asia funds did better, data shows.

Falls in Russian markets and associated fallout in European emerging markets took their toll on hedge funds in this sector, with capital invested into emerging markets falling by $1.4 billion in the final three months of 2014, while performance of such funds for the whole of last year dropped sharply, according to Hedge Fund Research.

On a brighter note, emerging Asia funds gained ground last year.

Hedge Fund Research, the Chicago-based tracker of the sector, said its HFRI EM: Russia/Eastern Europe Index dropped 18.6 per cent in the fourth quarter, translating into a 26.5 per cent tumble for 2014, the third worst calendar year ever for this index.

Hedge fund capital invested in emerging markets ended at $183.8 billion (1.15 trillion RMB, 534 billion Brazilian real, 11.2 trillion Russian rouble, 689 billion riyal, 11.3 trillion Indian rupee), the firm said.

Only 2008 (-59.4 per cent) and 1998 (-63.9 per cent) produced worse performances for such Russia/Eastern Europe-focused hedge funds, HFR said. Investors might take some comfort from how these funds bounced sharply back after these episodes, however. The HFRI EM: Russia/Eastern Europe Index gained 50.8 per cent and 83.3 per cent in 2009 and 1999 respectively.

Since inception in 1995, the index has posted annualised returns of 11.5 per cent, nearly identical to the 12.2 per cent annualised gain of Russian equities. Over that time, the HFRI EM: Russia/Eastern Europe Index had annualised volatility of 24.7 per cent, about half of the 48.6 per cent of Russian equities.

Total hedge fund capital invested in Russia fell by $2.8 billion in the fourth quarter of 2014 and $4.7 billion for the whole of 2014, down to $21.5 billion.

Flows, Asia
Inflows into emerging Asia partially offset outflows in Russia/Eastern Europe, with emerging Asia rising by nearly $1 billion in the fourth quarter and $3.5 billion for 2014, bringing total AuM to $50.5 billion.

Hedge fund performance in emerging Asia was led by the HFRI EM: India Index, which climbed 4.2 per cent for the fourth quarter and 42.7 per cent for 2014, topping Indian equities by 1300 basis points for the year.

The HFRI EM: China Index was up 4.7 per cent in the fourth quarter and posted a gain of 5.8 per cent for 2014, trailing the strong gain of Chinese equities.