The sector has had its challenges but last year saw emerging market hedge funds clock up record amounts of capital.
The total amount of capital in emerging market-focused hedge funds hit a record of $200.7 billion at the end of last year, according to figures from Chicago-headquartered Hedge Fund Research. The asset pile grew amid stronger energy commodities and a rise in the exchange rate of the dollar.
Emerging market hedge fund capital increased by $9.3 billion, despite net investor outflows of $4.8 billion. Across all regions, as previously reported, total hedge fund assets globally increased by $121.6 billion in 2016, ending the year at $3.02 trillion, also a record.
The HFRI Emerging Markets (Total) Index gained 3.2 per cent in January this year, following a 7 per cent gain in 2016. The HFRI EM: Latin America Index rose 5.6 per cent in January, extending the industry-leading gain of 27.2 per cent in 2016. Strong gains for the latter index follow three years of volatile performance, culminating with a decline of 20.9 per cent in 2015.
Total capital invested in Latin American-focused hedge funds increased to $6.3 billion in 2016, managed by over 100 funds.
Hedge funds investing in Russia and Eastern Europe also led industry performance in 2016, as the HFRI EM: Russia/Eastern Europe Index advanced 26.8 per cent for the year and added 3.2 per cent in January 2017. Total capital invested in Russian/Eastern European-focused funds increased by $2.5 billion in 2016 to $29.3 billion, managed by over 170 hedge funds.
Emerging Asia also advanced at the start of 2017 after posting a narrow gain in 2016, strongly outperforming the decline of Chinese equities for the year. The HFRI EM: Asia ex-Japan Index surged 3.7 per cent in January, topping the 1.8 per cent return of the Shanghai Composite Index.
For 2016, the HFRI EM: Asia ex-Japan Index was nearly unchanged, up 0.05 per cent, though recovering from a steep drawdown of 9.7 per cent in the first two months of the year and outperforming the Shanghai Composite Index by over 1200 basis points.
Total capital invested in emerging Asia funds declined by $4.4 billion for 2016 to $48.6 billion, managed by over 500 hedge funds.