THE PERFORMANCE CHARACTERISTICS OF ASIAN-FOCUSED HEDGE FUNDS

Abstract

This paper attempts to develop a better institutional and empirical understanding of hedge funds substantially allocated to Asia. Indices and disaggregated data for Asian-focused hedge funds (AHFs) are obtained from Eurekahedge. Trends in the relevant data are examined, and the returns of various AHF indices are analysed using statistical methods. We find that there has been significant growth in the number of AHFs, particularly over the past decade. Assets under management (AUM) for these funds grew exponentially over the same period. Equity-related funds received the most interest. In the wake of the ongoing financial crisis, AUM has fallen significantly, but the population of AHFs has remained fairly stable. Consistent with intuition, live funds within each strategy have been found to generate higher returns with lower volatility compared to their dead counterparts. Where available, indices for the various strategies show that AHFs have performed well in spite of the crisis. Significant autocorrelation was observed in index returns. Although they were fairly dispersed at the start of the period under study, correlations between the various indices tended towards one in the course of the crisis. We attempt to detect the presence of nonlinearity in index returns for the various AHF strategies. The presence of nonlinearity was empirically verified by regressing the index returns on a variety of risk factor proxies. No systemic risk factors were identified and the historical highs of oil and gold prices in the period under study did not have a significant effect on index returns.