The increase in assets included $800 million of new capital, the Chicago-based industry research firm said. The performance-based asset increases were concentrated in emerging markets in Asia, with the HFRI Emerging Markets: Asia ex-Japan Index returning almost 9 per cent in the three months to September 30, 2009.

Asian hedge funds are making a comeback this year, beating global peers, as the region leads the world’s emergence from the worst recession since World War II, after posting record losses in 2008. A measure tracking the region’s hedge funds has gained about 23 per cent this year through October, beating the global index, which has gained 16 per cent, according to Eurekahedge Pte.

Assets Soaring

Asian hedge fund assets increased to $73.7 billion in the third quarter

“Hedge funds that are surviving and prospering will see an increase in their assets under management going forward,” said Frank Packard, the Tokyo representative of Hong Kong-based Triple A Partners, a provider of start-up capital for hedge funds. “Hedge fund investors tend to be more long-term than month-to-month and we may be seeing some people taking money out of the equities market to invest in hedge funds.”

Outperformance

“Asian hedge funds demonstrated definitive alpha in the third quarter, displaying strategic versatility while building on strong year-to-date performance,” Ken Heinz, president of Hedge Fund Research, said. Alpha is the premium an investment portfolio earns above a certain market benchmark such as the Standard & Poor’s 500 Index in the US.

“The value proposition for global investors looking to access superior growth characteristics continue to be validated by the tactical flexibility exhibited by the Asian hedge fund industry as it continues to evolve,” Heinz said.

Performance gains were concentrated in funds employing relative value and arbitrage strategies, with those funds’ assets increasing more than $3 billion. Relative value methods take advantage of mismatches in the price of various securities. While the percentage of Asian hedge funds focusing on equity hedge has declined, relative value and macro strategies have increased to 17.6 per cent and 5.1 per cent, respectively, of the total Asian market funds over the last 12 months, the report showed.

Happy Returns

Performance of most India-focused hedge funds has been positive this year

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The percentage of Asia-focused firms based in China rose about 5 per cent to 23.2 per cent at the end of the third quarter from a year ago, while 11.7 per cent of Asia-focused firms were located in Singapore, according to the report.

The HFRX China Index gained 6.1 per cent for the quarter and 44.2 per cent year-to-date. Despite declining nearly 23 per cent in August, the Chinese equity market has gained approximately 59 per cent cumulatively over the trailing three years, while the HFRX China Index has gained nearly 80 per cent.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.