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HFR Kenneth J Heinz

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Asian hedge funds top equity markets in Q4 and FY2016

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Strong gains across Event-Driven, Relative Value Arbitrage and Macro strategies saw Asian hedge funds top the performance of volatile Asian equity markets in both Q4 and FY 2016, according to HFR’s latest Hedge Fund Industry Report.

At the same time, total hedge fund capital invested in Asian hedge funds was steady to conclude 2016, posting a narrow quarterly decline of USD1.4 billion to end the year at USD110.4 billion USD (RMB, JPY) For FY 2016, total capital invested in the Asian hedge fund industry fell by USD8.6 billion, though the majority of the decline occurred in the volatile 1Q16, when assets dropped by USD7 billion.

Chinese hedge funds surged to begin 2017 after experiencing high performance volatility throughout 2016. The HFRI China Index was up 4.3 per cent in January 2017, topping the 1.8 per cent gain of the Shanghai Composite Index. For 2016, the HFRI China Index fell 4.3 per cent, significantly outperforming the 12.3 per cent decline of the Shanghai Composite Index. The Index tracked a volatile path throughout the year, ranging from sharp declines to begin 2016, followed by a recovery period in the second and third quarters, and ending the year by falling 4.5 per cent in Q416. Capital invested in China-focused hedge funds fell slightly in 2016 to USD48.6 billion, down from USD53 billion to end 2015.

Japanese hedge funds also produced positive performance to begin 2017 after concluding 2016 with a gain in Q4, as well as for the full year. The HFRI Japan Index added 4.3 per cent in Q4, bringing FY 2016 performance to +0.3 per cent, in line with the 0.4 per cent gain of the Nikkei 225; the Index returned +0.9 per cent to begin 2017. Total capital managed by Japanese hedge funds increased by 1.2 billion in Q4 to USD26.4 billion, though this represents a decline of USD1.7 billion for FY 2016.

Asian-located ED hedge funds, which include Distressed, Merger Arbitrage and Shareholder Activist strategies, led performance gains for 2016, mirroring the global hedge fund industry, with Asian Event-Driven hedge funds up 10.5 per cent for the year, in line with the +10.7 per cent return of the HFRI Event-Driven (Total) Index. Similarly, Asian-located, fixed income-based Asian Relative Value Arbitrage hedge funds returned +9.3 per cent in 2016, topping the gain of 7.7 per cent for the HFRI Relative Value (Total) Index. Asian Macro strategies posted a 2016 return of +6.4 per cent, topping the HFRI Macro (Total) Index gain of 1.2 per cent by 520 bps.

“Asian hedge fund managers effectively navigated currency volatility and geopolitical uncertainty throughout 2016, with strong gains across Event Driven, Arbitrage and Macro strategies offsetting regional equity market declines,” says Kenneth J Heinz, President of HFR. “2017 is off to a strong start for Asian hedge funds, as managers adjust exposures to new US trade policies and an improving global macroeconomic environment. Extension of these recent gains is likely to contribute to growth in Asian hedge fund capital through H1 2017.”

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