2011 Asia's Hedge Fund Annus Horribilis

"A man's respect for law and order exists in precise relationship to the size of his paycheck"

Adam Clayton Powell Jr. (1908 - 1972), "Keep the Faith, Baby!", 1967

The debris caused by the risk-on, risk off storm of 2011 uncovered an ugly end to the net of fee performance of many hedge funds, including those specializing in Asia. The HFR hedge fund index came in at -5.25% over 2011 while Asia-focused strategies tracked by HSBC Private Bank were as follows: Asia Multi-Strategy, -3.91%; Equity Diversified Asia -9.06%; Equity Diversified Japan -7.69%; Macro Diversified Asia +6.10%; Market Neutral Discretionary Asia +10.13%; Multi-Strategy Asia -0.15%; and, Multi-Strategy Diversified Asia -15.99%.

Overall, not an impressive performance put up by the industry. That plus rising operational costs and an absence of early western investors suggests that the near term performance landscape will remain bleak with an outflow of AUM and quiet firm closings.

The reasons are numerous for the generally poor showing among the majority of funds. Aside from negative macro money policy actions from a number of the regions cbs, the vast bulk of investors were swept away with the same risk-on and risk-off bipolar like volatility that afflicted developed western markets. In such an environment, much foreign liquidity simply raced back home or sought safety in gold (at least initially) then U.S. Treasuries. More traditional bottom up, stock picking or liquidity driven momentum investing was thrown aside as retail fled for cash or cash equivalents.

Until risk-on returns the picture will remain difficult for long-biased equity hedge fund managers trawling Asian financial public markets. Mahalo.