02/14/2017 Market Commentary

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HFRI China Index tops Shanghai Composite Index for 2016; Asian Event Driven leads strategy gains, Asian Macro tops HFRI
CHICAGO, (February 15, 2017) – Asian hedge funds topped the performance of volatile regional Asian equity market indices for both 4Q and FY 2016, led by strong gains across Event-Driven, Relative Value Arbitrage and Macro strategies. At the same time, total hedge fund capital invested in Asian hedge funds was steady to conclude 2016, posting a narrow quarterly decline of $1.4 billion to end the year at $110.4 billion USD (RMB, JPY), according to the latest HFR Asian Hedge Fund Industry Report, released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. For FY 2016, total capital invested in the Asian hedge fund industry fell by $8.6 billion, though the majority of the decline occurred in the volatile 1Q16, when assets dropped by $7 billion.
Chinese hedge funds surged to begin 2017 after experiencing high performance volatility throughout 2016. The HFRI China Index was up +4.3 percent in January 2017, topping the +1.8 percent gain of the Shanghai Composite Index. For 2016, the HFRI China Index fell -4.3 percent, significantly outperforming  the -12.3 percent 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 percent in 4Q16. Capital invested in China-focused hedge funds fell slightly in 2016 to $48.6 billion, down from $53 billion to end 2015.
Japanese hedge funds also produced positive performance to begin 2017 after concluding 2016 with a gain in 4Q, as well as for the full year. The HFRI Japan Index added +4.3 percent in 4Q, bringing FY 2016 performance to +0.3 percent, in line with the +0.4 percent gain of the Nikkei 225; the Index returned +0.9 percent to begin 2017. Total capital managed by Japanese hedge funds increased by +1.2 billion in 4Q to $26.4 billion, though this represents a decline of $1.7 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 percent for the year, in line with the +10.7 percent return of the HFRI Event-Driven (Total) Index. Similarly, Asian-located, fixed income-based Asian Relative Value Arbitrage hedge funds returned +9.3 percent in 2016, topping the gain of +7.7 percent for the HFRI Relative Value (Total) Index. Asian Macro strategies posted a 2016 return of +6.4 percent, topping the HFRI Macro (Total) Index gain of +1.2 percent 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,” stated 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 1H17.”
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