Emerging Markets and Asian hedge funds led industry wide gains in early 2025 as financial market volatility surged as a result of tariff and trade uncertainty, with volatility also rising on sharp declines in both technology equities and cryptocurrencies, pushing both into market corrections through mid-1Q25.
The HFRI Emerging Markets: China Index surged +6.0 per cent YTD through February, while the HFRI EM: Asia ex-Japan Index gained +2.8 per cent over the first two months of the year, as reported today with the releases of the HFR Asian Hedge Fund Industry Report and the HFR Emerging Markets Hedge Fund Industry Report from HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.
The HFRI Emerging Markets (Total) Index, which covers all EM regions, advanced +2.3 per cent YTD through February, leading the HFRI Fund Weighted Composite Index (FWC), which consists of funds investing in both Emerging and Developed markets, which gained +0.8 per cent over the same period. The HFRI FWC performance was led by fixed income-based HFRI Relative Value (Total) Index, which jumped +1.8 per cent YTD through February.
Other regional and Emerging Markets indices have posted gains to begin 2025 with the HFRI Japan Index advancing +1.0 per cent, the HFRI EM: MENA Index gaining +2.2 per cent, and the HFRI EM: Latin America Index adding +1.3 per cent YTD through February.
Hedge funds with high exposure to cryptocurrency across EM regions including Korea, Russia, China, and the Middle East fell sharply to begin 2025 as the volatile HFR Cryptocurrency Index declined -17.6 per cent through the first two months of the year, this after gaining +59.2 per cent in 2024.
As announced previously, HFR launched an expanded strategy classification system for hedge funds and alternative investment products focused on the Cryptocurrency and Blockchain space, with the introduction of 11 sub-strategies.
Total Emerging Markets hedge fund assets declined slightly to end 2024 at an estimated USD254.9 billion, while total estimated capital invested in Asian hedge funds remained relatively unchanged from the prior quarter, ending the year at an estimated USD131.2 billion AUM.
“Emerging markets hedge funds have and continue to navigate powerful, accelerating and rapidly evolving volatility dominated by policy shifts regarding tariffs and global trade to begin 2025, with the HFRI EM China Index emerging as the leading area of performance thus far. In addition to trade and tariff shifts, managers are also positioning for the impacts of policy shifts in immigration, energy, and US government budget reduction efforts, which are driven by and are designed to dramatically influence current trade deficits,” says Kenneth J. Heinz, President of HFR. “Cryptocurrency volatility also surged to begin 2025, with managers navigating policy shifts toward additional expansion of cryptocurrency access and investment by the Trump administration. As hedge fund exposure to cryptocurrencies has experienced a dramatic increase in recent years, managers are not only offering diversified access vehicles but also quantitative, arbitrage and defi strategies as this market continues its rapid evolution and expansion. As these risks and uncertainties evolve throughout the year, it is likely that leading global institutions and investors will increase allocations to innovative, sophisticated EM and cryptocurrency hedge funds for specialized access to these powerful trends.”
