11/10/2016 Market Commentary

Download PDF:

Chinese Hedge Funds Surge In 3Q
Asian hedge fund assets rise as Japanese Yen gains; HFRI Japan Index tops Nikkei 225 YTD
CHICAGO, (November 11, 2016) – Chinese hedge funds posted strong gains in 3Q16 as the Shanghai Composite Index pared 2016 losses and the Renminbi stabilized after 1H16 volatility. The HFRI China Index surged +7.5 percent in 3Q while the HFRI Asia ex-Japan Index climbed +6.7 percent, 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.
Total capital invested in Asian hedge funds increased to $111.8 billion (11.906 trillion JPY (¥); 760 billion RMB) in 3Q16, recovering the decline from the prior quarter but remaining below the record of $119.8 billion from 2014. Total global hedge fund industry capital also increased to a record of $2.971 trillion (316.38 trillion JPY (¥); 20.2 trillion RMB) to end the quarter.
Strong Asian hedge fund performance in 3Q topped gains of regional equity markets and reversed or pared declines from 1H16. Both the HFRI China Index and the HFRI EM: Asia ex-Japan Index outperformed the Shanghai Composite Index by 400 and 500 basis points (bps), respectively, for the quarter; these gains increased the YTD performance differential to 1500 and 1900 bps.
Hedge funds focused on investing in Japan also produced positive returns in 3Q16, as the Japanese Yen (¥) posted intra-quarter gains against the US Dollar, while the Nikkei 225 pared YTD losses. In a reversal from its 1H16 performance, the HFRI Japan Index advanced +1.95 percent in 3Q, though trailed the quarterly Nikkei 225 gain of +5.6 percent. In October, the HFRI Japan Index added +2.1 percent, increasing its outperformance of the Nikkei 225 to over 550 bps YTD.
Asian-located Event Driven (ED) and Relative Value Arbitrage (RVA) hedge funds have seen strong returns in 2016, leading the global composite index, as well as the overall ED and RVA strategy-specific indices. Asian-located ED hedge funds, which include Distressed, Merger Arbitrage and Shareholder Activist strategies, have climbed +8.4 percent YTD through October, leading the +6.8 percent return of the HFRI Event-Driven (Total) Index. Similarly, Asian-located, fixed income-based RVA funds have gained +8.2 percent YTD, leading the +6.0 percent return of the HFRI Relative Value (Total) Index. The HFRI Fund Weighted Composite Index®, which encompasses all hedge fund strategies globally, is up +3.6 percent on the year.
“Asian hedge funds have effectively navigated intense regional equity market and currency volatility in 2016, topping sharp YTD losses for the Shanghai Composite and the Nikkei 225,” stated Kenneth J. Heinz, President of HFR. “With the macroeconomic and political overhang of both the US election and Brexit now removed, and as global M&A continues to accelerate, we expect strong performance of specialized Asian hedge fund strategies to attract global and institutional investors while leading industry performance into 2017.”