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Nov 12, 2015

Asian hedge funds suffer heavy withdrawals

Hedge fund indexes post gains in October on renewed risk appetite

Hedge funds focused on investment in China suffered major losses in the third quarter as share prices fell and investors withdrew funds amid steep summer volatility, numerous trading suspensions and heavy government intervention, according to research firm Hedge Fund Research (HFR).

The HFRI China Index, which measures hedge funds specialized in investments in China, plunged 15.4 percent in the third quarter, paring gains year to date to 5.2 percent, HFR says in a press release. At the same time, the Shanghai Composite Index dropped 28.6 percent.

Total hedge fund capital in Asian-focused funds fell to $117.5 bn – a drop of almost $9 bn from the second quarter – led by withdrawals from China-focused funds, HFR says. Investors withdrew just under $1 bn in the quarter while performance losses accounted for about $8 bn. Total hedge fund capital worldwide, meanwhile, fell by $95 bn to $2.7 tn.

However, the HFRI China index climbed 5.2 percent in October, its biggest increase since April (when it rose 14.1 percent), as investors regained some risk appetite and stock performance improved, HFR says. The gain in the month accounted for all of the index’s year-to-date increase, which also stood at 5.2 percent at the end of the month.

‘Chinese hedge funds experienced extreme dislocations in the third quarter, as investor risk tolerance fell sharply as a result of slowing Chinese economic growth, as well as fundamental structural concerns relating to the reliability of accounting practices employed by Chinese companies,’ says Kenneth Heinz, president of HFR. ‘Many of these concerns moderated in October as investor risk tolerance returned, resulting in strong gains for Chinese hedge funds as they recovered from Q3 losses.’

Hedge funds focused on Japan also fell, with the HFRI Japan Index declining 4 percent in the third quarter. The index, though, gained 2.9 percent in October, bringing the year-to-date increase to 7.8 percent, according to HFR.