East Europe, Russia Hedge Funds Pare Losses But Still Underwater
Russian assets had plunged as the stock exchange closed and the rouble posted steep losses before regaining some of the losses as the Russian Stock Exchange partially reopened, figures showed.
Hedge funds operating in emerging markets haven’t had a good summer, with funds extending the losses apart from some specific areas. Since January, they have fallen more than a third.
According to Chicago-based Hedge Fund Research, its HFRI EM: Russia/Eastern Europe Index rebounded later in the spring/early summer (+26.8 per cent) but the year-to-date loss is still heavy, at -37.4 per cent.
Russian assets had plunged as the stock exchange closed and the rouble posted steep losses before regaining some of the losses as the Russian Stock Exchange partially reopened. In addition to these geopolitical risks, global inflationary pressures increased to generational highs and the US Federal Reserve aggressively raised interest rates.
The various reports of hedge fund data from the likes of HFR have shown that for the industry as a whole, 2022 has been positive for macro strategies and those which can profit from volatility – helping these entities remind people of why they’re call “hedge funds.” However, certain sectors have been dragged down, and emerging markets in Eastern Europe have been particularly affected.
After seven consecutive months of declines to start the year, the HFRI Emerging Markets (Total) Index posted its first monthly gain for 2022 in August, advancing 0.75 per cent and paring the year-to-date decline to -12.5 per cent, HFR said. Total Emerging Markets hedge fund assets declined to $249.7 billion in the second quarter of 2022, down nearly $27 billion from the 2021 year-end AuM record of $276.4 billion.
The investable HFRI 500 Fund Weighted Composite Index, which includes funds across all regions in both emerging and developed markets, has fallen by 2.5 per cent year-to-date through August, with gains in uncorrelated macro and fixed income-based relative value arbitrage strategies offset by declines in higher beta equity hedge exposures.
Macro hedge funds have fared well this year. They typically attempt to profit from broad market swings caused by political or economic events. The war in Ukraine, for example, and the surge in inflation and rising interest rates, are exactly the kind of changes such funds try to tap into.
While Russian-focused hedge funds plunged at the beginning of 2022, other emerging markets' regions posted moderate declines driven by surging global inflation and the appreciation of the US dollar.