Hedge funds in Asia, which beat their counterparts in the United States and Europe last year, are off to their worst annual start on record this year, with the region's stock markets having plunged amid a dimming outlook for growth.
Asia hedge funds, excluding those that invest in Japan, fell 1.5 per cent in February, bringing their loss for the first two months of the year to 6.6 per cent, said Singapore- based data provider Eurekahedge.
Apart from being the biggest drop ever for the first two months of the year, that is also the worst start among the world's major regions, Eurekahedge said. Hedge funds including those from Greenwoods Asset Management and Zeal Asset Management extended declines they suffered in January.
After successfully navigating turbulent markets in 2015, hedge funds in Asia are seeing a reversal this year as worries about a global slowdown have deepened. The Shanghai Composite Index has tumbled 19 per cent this year to rank among the worst-performing equity markets in the world, and most of the region's benchmarks have been whipsawed by volatility amid scant signs of global growth.
"Hedge fund managers in the region, especially those focusing on long-short strategies, had been stung by volatility in underlying markets," said Mr Mohammad Hassan, a Singapore-based senior analyst at Eurekahedge.
HIT BY VOLATILITY
Hedge fund managers in the region, especially those focusing on long-short strategies, had been stung by volatility in underlying markets.
MOHAMMAD HASSAN, a Singapore-based senior analyst at Eurekahedge.
As it becomes harder to post consistent returns, investors are increasingly shifting their money to the largest or most promising managers, prompting many smaller- scale firms to exit the business or return money to investors. That is creating a bifurcation in Asia's hedge fund industry.
The losses for hedge funds investing in Asia ex-Japan compare with a decline of 3.2 per cent in Europe through the end of February and a fall of 1.7 per cent in North America, the Eurekahedge website shows. Last year, Asia ex-Japan hedge funds rose 7.5 per cent, beating their rivals in other parts of the world.
Some funds have, however, managed to generate gains.
Wykeham Capital's Asia fund, which focuses on small-cap stocks listed in Hong Kong, rose 8.2 per cent in February, a rare outlier among hedge funds in Asia. That pared the Wykeham Capital Asia Value Fund's loss to 1.7 per cent so far this year, said Mr Howel Thomas, the fund's Hong Kong- based portfolio manager who started the firm in 2010.
Quam Asset Management's China-focused fund gained 2.3 per cent in February, recouping some of the losses suffered in January, according to Mr Chris Choy, chief investment officer at the Hong Kong- based hedge fund.