Emerging market hedge fund assets ‘hit record £200bn’

Hedge fund assets investing in emerging markets have surged above the $200 billion mark for the first time, according to a new report from Hedge Fund Research (HFR).

Chicago-based HFR said the growth has been driven by hedge funds invested in Russia and Latin America. Total capital invested in Latin American hedge funds increased by $6.3 billion in 2016, and the assets of Russia and Eastern Europe-focused funds were up by $2.5 billion to $29.3 billion, managed by over 170 hedge funds.

HFR said energy commodities and the US dollar had posted strong gains. The company’s Emerging Markets Hedge Fund Industry Report, shows that across 2016, emerging market hedge fund capital increased by $9.3 billion.

Emerging markets in Asia suffered, however, declining by $4.4 billion for 2016 to $48.6 billion, managed by over 500 hedge funds.

“Expectations for trade and immigration policy adjustment accelerated to begin 2017 as hedge fund capital invested in emerging markets set a second consecutive quarterly record and surpassed the $200 billion milestone for the first time,” said HFR president Kenneth J. Heinz.

“Strong performance gains, specifically focused in Latin America and Russia/Eastern Europe, contributed to this growth, as investors positioned for the impacts of divergent monetary policies in US & Europe on emerging markets. Specialised hedge funds which have demonstrated the ability to navigate these trends are likely to continue to lead industry gains in the first half of 2017.”

Total hedge fund assets increased by $121.6 billion in 2016, ending the year at $3.02 trillion, the second consecutive quarterly record for industry capital, HFR said.

Separate research from Barclays suggests the global hedge fund industry will enjoy a buoyant 2017 too.

A poll by the bank of 350 investors found nearly half (48 per cent) plan to increase their hedge fund allocations in 2017, compared to 33 per cent 12 months ago.

The findings suggest the rumoured demise of the hedge fund industry is exaggerated. “Prominent institutional investors had announced their plans to exit hedge funds entirely and the financial press was awash with articles criticising hedge fund performance and fees,” Louis Molinari, managing director, global head of capital solutions at Barclays, told Global Investor Magazine.

“In fact, we ultimately underestimated the severity of the impact, as 2016 saw $70 billion in net redemptions from hedge funds, marking the fifth consecutive quarter of outflows.”

Mr Molinari is expecting a return to net inflows this year. “There may initially be further outflows before investors begin to allocate more than they redeem, but we do believe that the outflows will eventually begin to taper,” he said.

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