Hedge funds investing in emerging markets outperformed the broad hedge fund universe in the second quarter 2009, according to Hedge Fund Research.

The HFRI Emerging Markets Index gained 18.92% in the quarter compared with gain of 9.17% for the HFRI Fund Weighted Composite Index. In the first half of the year emerging markets funds returned 20.18%, the best six-month result for emerging markets strategies since a 27.4% gain in 1999.

The 2009 performance follows an historic decline of 37.26% for the HFRI Emerging Markets (Total) Index in 2008, the worst year of performance on record for emerging markets since tracking the category began in 1990.

Despite the improved performance investors continued to withdraw assets from emerging markets during the quarter with $2.5 billion in capital exiting the region. This was offset by positive market returns totalling $12.9 billion resulting in a net increase of $10.4 billion in emerging markets assets in the second quarter. Assets in hedge funds focusing on emerging markets now total $77 billion.