Emerging markets hedge funds lead industry recovery

Following a gain of over 1% in the first quarter 2009, the HFRI Emerging Markets (Total) Index advanced over 7.5% in April. This was the best performance month since December of 2000, according to data released by Hedge Fund Research.

Strong performance in March and April offset losses in the first two months of the year with the HFRI Emerging Markets (Total) Index gaining nearly 9% year to date.

For the quarter asset gains due to performance added $5.1 billion to emerging markets hedge funds assets under management (AUM), nearly offsetting investor withdrawals of $6.4 billion.

The strong performance by emerging markets hedge funds year to date 2009 follows a decline of 37.2% in 2008, the worst calendar year performance for emerging markets since HFR began tracking hedge fund data in 1990.

While prone to volatility, emerging markets hedge funds have historically posted strong gains following market bottoms. In the 12 months following the trough of each of the five largest performance declines, funds have produced an average gain of 23.3%.

"Investors exhibited extreme risk aversion at the end of 2008, withdrawing record amounts of capital. While redemptions continued in the first quarter at a slightly lower level, risk aversion began to recede into the end of the quarter and has continued to fall," said Kenneth Heinz, president of Hedge Fund Research.

"Hedge funds investing in emerging markets have produced strong, albeit volatile, long-term performance, posting an annualised gain of more than 12.5% since 1990, nearly double that of the S&P 500," he said.