Asian hedge funds enjoyed record inflows amid strong 2013 performance, according to data released by Chicago-based Hedge Fund Research.

Hedge Funds

Total capital in the Asian hedge fund industry grew to $112.3 billion, surpassing levels set in 2007 prior to the financial crisis.  By contrast the total assets under management is close to $2 trillion, according to data from BarclayHedge.

Inflows driven by performance as Nikkei up 57%

Asset inflows for both the fourth quarter and January of 2014 were driven by investor allocations and performance gains, HFR noted.  Investors allocated $4.2 billion to Asian hedge funds in the fourth quarter, the largest amount since HFR began tracking Asian hedge fund statistics in 2008.  For the year, Asian hedge funds saw inflows swell by $10.5 billion.  Inflows that witnessed the sharpest gains included Equity Hedge and Event Driven strategies, which typically exhibit high correlations to Asian equity and credit markets.  The Japanese Nikkei stock index posted a 57% gain in 2013, its largest rise in over 40 years.  Asian event driven strategies brought in $2.2 billion, which includes activist and distressed strategies, while Macro strategies, including CTA relative value arbitrage and fixed income, saw lighter inflows in 2013.

Performance was a key theme, as the HFRX Japan Index gained +6.0 percent in the fourth quarter, ending the year up +32.8 percent, which was just below its record gain of +33.1 percent in 2005.  Interestingly the HFRX China Index, which enjoyed gains of +7.8 percent in the fourth quarter and was up +19.0 percent for the full year, exhibited negative correlation to the Shanghai Composite, which declined of -6.75 percent for the year. The strong returns for the HFRX China Index represented the best full year performance since the Index gained +50.4 percent in 2009.

Japanese hedge funds leads inflows

Japanese-focused hedge funds led the Asian capital inflows, as $1.7 billion was allocated to pan-Asian funds, $1.4 billion to Japan funds and $1.1 billion emerging Asian hedge fund strategies. For the full year 2013, investors allocated $2.9, $4.5 and $3.0 billion to each of these regions, respectively.

“2013 was an exceptional year for the Asian hedge fund industry, posting strong performance gains across the region as assets surpassed the pre-financial crisis peak, both despite divergent equity market trends across developed and emerging Asia,” stated Kenneth J. Heinz, President of HFR. “The Asian hedge fund industry has now emerged as the preferred mechanism for both global and Asian investors to participate in the exciting growth opportunities while mitigating complex risks associated with quantitative easing, currency devaluation or prospective RMB appreciation and structural concerns regarding banking institutions. Despite EM-centric currency and equity volatility to begin 2014, investors are likely to increase allocations to Asian hedge funds as these themes evolve in 1H14.”