Asia-focused hedge funds continued to build on strong gains in the first half of 2009, with the HFRI Emerging Markets Asia ex-Japan Index returning nearly 9% in the third quarter, according to data by Hedge Fund Research.

Assets in Asian hedge funds climbed to $73.7 billion, including $800 million of new capital. This is the first net inflow of capital since the second quarter of 2008.

Although emerging and developed Asia experienced performance increases and capital inflows, the performance based asset increases were concentrated in emerging Asia. The percentage of Asian-focused companies headquartered in China is 23.2%, reflecting an increase of nearly 5% since the third quarter of 2008, reported Hedge Fund Research. Almost 12% of Asian-focused companies are located in Singapore.

Performance gains were concentrated in equity hedge and relative value arbitrage funds, resulting in an asset increase of over $3 billion. The percentage of Asian hedge funds focusing on equity hedge has declined. Relative value increased 17.6% and macro increased to 5.1% of total Asian market funds over the last 12 months.

The HFRX China Index gained 6.1% for the quarter and 44.2% year-to-date.

Despite declining nearly 23% percent in August, the Chinese equity market has gained around 59% cumulatively over the trailing three years. The HFRX China Index has gained nearly 80%.

“Asian hedge funds demonstrated definitive alpha in the third quarter, displaying strategic versatility while building on strong year-to-date performance,” said Ken Heinz, president of Hedge Fund Research.

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