Asian hedge funds find fastest GDP growth doesn't help returns

Equity focus doesn't pay off

Commodity Funds

Volatile commodity markets have also roiled funds in Asia.

AN Commodity Fund, which invests in energy, metals and agricultural derivatives traded on exchanges, fell 6.5 percent this year through Sept. 12, said Tan Tien Leong, the chief investment officer of Singapore-based AN Capital Pte.

“Being a commodity hedge fund, the reason why you’re in the space is because you believe in a long-term growth story so you tend to be more directionally bullish than bearish,” Tan said. “Since early 2011, a lot of exogenous shocks occurred outside of our analytical framework which affected psychology and fund performance.”

Decisions to buy wheat and corn as their prices declined contributed to the fund’s performance, said Tan, a former fund manager at Millennium Capital Partners LP.

Redemptions by risk-averse investors forced commodity hedge funds to sell out of their positions to return cash, also affecting the fund’s performance, he said. AN Commodity Fund has shrunk to about $2.6 million from its peak of about $41 million in November 2010, in part because of redemptions, he said.

The Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped as much as 13 percent and gained as much as 11 percent this year amid expectations for further quantitative easing measures and concerns about Europe’s debt crisis.

Country Focused

Country-focused funds are also struggling. The Quam Silkroad Mongolia Fund, which primarily invests in overseas- traded companies whose main assets are in Mongolia, is down 36 percent this year through August on investments in copper, gold and coal mining companies that are in production and exploration stages, said Laurent Ettedgui, a Hong Kong-based manager.

Mongolia’s stock benchmark Silk Road Mongolia Index is down more than 40 percent this year because of the even heavier dominance of mining companies amid declines in commodity prices, he said.

Cyrus Mak, Quam’s Hong Kong-based investor relations officer, declined to share the assets under management of the fund, citing confidentiality.

“There has been an overall sense of risk aversion, which means that emerging markets get less favored by investors at a time like this,” said Reliance Asset’s Mehta. “Markets today are globally linked. If the news flow from the U.S. and Europe is not good, then you get affected even if you did well with your investments in Asia.”

Mehta’s India Equity Growth Fund Long Term Share Class returned 10 percent this year through August, according to the company. The fund, which focuses on mid-to-small cap stocks, is long-biased -- meaning that more of its bets are concentrated on stocks it expects to rise -- with a three-to-five-years investment return horizon and doesn’t generally short stocks, he said. The fund had $66.7 million as of Aug. 31, according to data compiled by Bloomberg.

“Hedge funds are relatively new to this part of the world,” he said. “The U.S. and Europe have a lot more history, but you just have to wait out a particular cycle in Asia.”

Bloomberg News

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