India-focus hedge funds see sharp losses

BL Research Bureau | Updated on February 14, 2011


Hedge fund investments in India have started with deep loss in January even as returns from global hedge fund investments were flat.

According to Eurekahedge, a global alternative asset data provider, hedge fund investments in India was down 8.6 per cent in January.

This performance is, however, relatively better when compared to the domestic benchmarks. BSE Sensex, the large-cap dominated index declined 10 per cent last month, while the BSE Small-cap index fell 12 per cent.

The decline in Indian hedge fund index compares unfavourably with most other regional indices. Eurekahedge hedge fund index that covers all hedge funds globally, delivered flat returns in January, gaining 0.01 per cent. The sentiment in the industry, however, appears to be quite upbeat with 30 new hedge fund launches last month.

Hedge funds invested in India were on the back-foot in November last year, when the domestic equity markets began correcting spooked by raging inflation and series of interest rate hikes by the Reserve Bank of India. Eurekahedge India index declined 4.7 per cent in November. The returns, however, turned positive in December helping to close the year with 13 per cent return.

The performance of Indian hedge funds compares poorly with its Asian and emerging market peers as well. Hedge funds in Greater China recorded 1.18 per cent decline, and in Taiwan, the decline was 0.8 per cent. Korea-based hedge funds recorded 0.5 per cent gains. Eurekahedge emerging market index too declined just 0.41 per cent.

India has typically been a high beta market for hedge fund investments since most of these funds follow the long-short equity strategy alone. Greater exposure to equity markets thus, makes them record sharp rallies and declines in periods of volatility. Eurekahedge India index declined 51 per cent in 2008 and this index gained 52 per cent in 2009.

Top gainers among regional indices in January were hedge funds in eastern Europe and Russia up 2.3 per cent. Japanese hedge funds were the second largest gainers, up 1.3 per cent. Since equity markets were volatile, it is not surprising that fixed income strategies returned the most last month.

Eurekahege Fixed Income Index gained 2.45 per cent. Distressed debt funds continued their strong performance. After returning 21 per cent in last calendar, they returned 1.5 per cent in January. CTA/Managed futures funds lost 1.2 per cent following the decline in commodity prices.

Published on February 14, 2011

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