HFR writes that emerging markets’ hedge fund performance accelerated into 2H25, led by a powerful combination of factors including expectations for falling interest rates, improving global economic outlook, progress on trade/tariff negotiations and optimism over near-term resolution of ongoing military geopolitical conflicts.
The HFRI EM: China Index surged +6.5 per cent in August, while the HFRI Japan Index added +4.1 per cent, vaulting the YTD returns to +16.2 and +16.5 per cent, respectively, 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 HFRI Emerging Markets (Total) Index, which covers all EM regions, advanced +3.5 per cent in August and +13.2 per cent YTD through August, leading the HFRI Fund Weighted Composite Index® (FWC), which is comprised of globally based hedge funds investing in both Emerging and Developed markets. The HFRI FWC Index advanced +7.2 per cent over the first eight months of the year, with strategy performance led by the directional HFRI Equity Hedge (Total) Index, which jumped +3.1 per cent in August and +10.7 per cent YTD through August.
Other regional and Emerging Markets indices have posted strong YTD gains, with the HFRI Latin America Index jumping +12.1 per cent and the HFRI EM: MENA Index advancing +13.6 per cent.
Hedge funds with high exposure to cryptocurrency across EM regions including Korea, Russia, China, and the Middle East accelerated the sharp recovery that began in the second quarter and extended into the third quarter.
The volatile HFR Cryptocurrency Index surged nearly +14.0 per cent in the two-month period covering July and August and has vaulted +29.9 per cent in the four-month period covering April through August, fully recovering sharp losses in 1Q 2025 to bring YTD performance to +1.3 per cent through August. 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 innovative, sophisticated and specialized sub-strategies.
Total Emerging Markets hedge funds increased to begin 3Q25 with an estimated USD263.7 billion AUM, the highest level since 4Q21, while total estimated capital invested in Asian hedge funds also increased over the prior quarter, beginning 3Q25 at an estimated USD136.4 billion AUM.
“Asian and Emerging markets hedge funds have led strong industry performance gains into 2H25, led by powerful contributions from falling rates, progressing trade negotiations and expectations for resolution of ongoing military conflicts in Israel and Ukraine/Russia. In addition to these, exposures to continued acceleration of AI spending and gains in cryptocurrencies have also contributed to strong performance,” says Kenneth J. Heinz, President of HFR. “While volatility across many of these drivers has fallen in recent months, Asian and EM hedge fund managers remained positioned for continued gains or possible reversals into year end, remaining and keeping portfolio exposures tactical, flexible and opportunistic as these risks and volatility continue to evolve. As previously noted, it is likely that leading global institutions and investors will increase allocations to innovative, sophisticated EM and cryptocurrency hedge funds for specialised access to these powerful trends.”
