NO LONGER LUCRATIVE

Investment in India-focused hedge funds is no longer the lucrative proposition it used to be. In 2012 year-to-date, India hedge funds have posted negative returns of 0.9 per cent. In contrast, the Sensex has faired relatively better rising by 12.8 per cent.

According to hedge fund research agency Eurekahedge, these hedge funds had registered losses of nearly 25 per cent in 2011. But this was not always the case. In 2010, the India-focused funds had delivered returns of 12.92 per cent and in 2009, they generated 51.6 per cent returns.

Struggling globally

Globally, too, hedge funds are struggling. From average returns of over 10 per cent in 2007, the average returns of hedge funds in various categories in 2012 so far are lower than what an investor would have earned from parking funds in a one-year term deposit. Globally, hedge funds delivered returns of 3.1 per cent in 2012 year-to-date. In the previous year, they had posted losses of 3.4 per cent, compared to nearly 11 per cent in 2010.

Latin America and North America-targeted funds were the top picks of the year, generating seven and four per cent, respectively, year-to-date as of August. In fact, Latin America has been the safest region for targeted hedge fund investing for the past two years, securing average returns of 2.07 per cent in 2011 when all other regional hedge funds posted negative returns.

In August, Latin America hedge funds delivered a return of 1.09 per cent, up marginally from 0.97 per cent in July. North American hedge funds have also improved their performance from 088 per cent returns in July to 1.02 per cent in August.

Eastern Europe and Russia-focused and Japan hedge funds, on the other hand, were the worst performers, delivering negative returns to investors. While Eastern Europe and Russia hedge funds have registered year-to-date losses of 0.71 per cent, Japan hedge funds have declined by 0.64 per cent.

EMs post better

Emerging market hedge funds have posted returns of 3.65 per cent for January-August, a far better performance than their negative returns of 8.12 per cent in 2011.

The return of 0.73 per cent in August was better than the July performance of 0.53 per cent.

An analysis of data provided by Eurekahedge indicates that large-size hedge funds with a pool of over $250 million have been the best performers among emerging market-focused funds, generating returns of nearly six per cent in 2012 up to September 12. Medium-size funds with a pool of $50-250 million earned investors about 5.6 per cent, but small-size funds with a corpus less than $50 million could only earn a little less than 3.5 per cent. But investors should keep in mind that these are only the average earnings, which across funds was about 3.5 per cent. In India, the difference between the top performing hedge fund — with a 24.9 per cent return — and the worst performer (-19.2 per cent) was stark.

Across emerging markets, the best performing emerging market funds could generate returns of 8.2 per cent in August, while the worst fund saw its investments whittled by 9.2 per cent.

In the large fund pool category, the best fund was able to deliver 6.5 per cent on investments, while the worst posted losses of 10.2 per cent. In the case of medium and small pool funds, the best possible return was 8.2 and 9.1 per cent, respectively. The worst funds witnessed 8.7 and 10.2 per cent losses.

If you have the funds and the risk appetite, hedge funds offer a lucrative opportunity to earn returns higher than what is possible through conventional investing.

arvind.jayaram@thehindu.co.in

(This article was published on September 13, 2012)
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