Emerging Markets

Hedge Fund Emerging Market Investment Stalls In Q3

Mark Shapland, Reporter, November 26, 2014

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Hedge funds have slowed their investing into emerging markets over the last quarter, a report by Hedge Fund Research has revealed.

Hedge funds have scaled back their investing into emerging markets over the last quarter, a report by Hedge Fund Research has revealed.

The slowdown is mostly due to continued political risks in Russian and the Middle East as well as an increasingly strong US dollar, the Chicago-headquartered organization said.

“Emerging markets hedge funds have experienced intense pressure recently as a result of sharp local currency depreciations and falling oil prices, tactically utilizing short exposure and sophisticated strategies to mitigate downside volatility and monetize opportunities created by fluid dislocations,” said Kenneth Heinz, president of Hedge Fund Research.

“Falling foreign currency reserves, higher import costs and lower oil revenue have increased the EM risk paradigm into year end, resulting in greater macroeconomic and geopolitical uncertainty, but also increased opportunity across Emerging Markets,” he added.

Total hedge fund capital invested in emerging market hedge funds for the third quarter was $185.15 billion – just $700 million more than the end of the second quarter.

Russia and Eastern Europe fared particularly badly in the quarter as Russian equities posted steep declines and the Russian rouble breached a historic low versus the US dollar. Total hedge fund capital invested in Russia fell to below $25 billion as of the end of Q3 across 170 hedge funds.

Meanwhile, Latin America was not much better after the Brazilian real fell to a 10-year low against the US dollar. Total hedge fund capital invested in Latin America declined to below $11 billion, across 110 hedge funds.

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