India-focused hedge funds shine among emerging markets

MUMBAI: India-focused hedge fund managers have fared better this year, with the assets managed by them outperforming emerging market funds.

The Eurekahedge India Hedge Fund Index, which tracks the performance of 22 funds and reports their net-asset value on a monthly basis, has given a return of 2.96% this year. Comparatively, the Eurekahedge Emerging Market Index is down 7.29% yearto-date. India outperformed the rest of Asia as well – the Asia Pacific Ex Japan Index fell 2.30%.

Analysts say while global emerging market (GEM) funds were witnessing huge redemptions, the same was not the case for India-focused funds. “The redemption for global emerging market funds is still high and some of this money will definitely be flowing into India-focused funds,” said Saurabh Mukherjea, CEO for institutional equities at Ambit Capital.

However, some are concerned about possible redemption pressure on India hedge funds when the US Fed moves to raise interest rates, likely later this year. “When the US Federal Reserve increases interest rate, investors will not differentiate between emerging markets and if there is a selloff, then inflows for India focused funds too would be impacted,” said Mohammad Hassan, senior analyst at Eurekahedge.


“This year, even though the outflows have not been that huge for India-focused funds, the inflows have slowed. Since the hedge fund money is stickier than that in traditional passively managed fund vehicles, the redemption pressure will also depend on individual fund performance.”

India-focused hedge funds have received inflows of just $70 million so far in 2015, compared with $351 million in 2013 and $215 million in 2014. The assets under management (AUM) of India hedge funds are small when compared to China funds, which have an AUM of close to $20 billion. The AUM of GEM funds is more than double of China-only funds.

Though the returns are positive for India-focused funds this year, they have not been very attractive when compared to 2014 when the Eurekahedge India index rose 38%. August proved to be the worst month for these funds, as the index fell 4.15%, its steepest fall in two years. The AUM of India-focused hedge funds rose marginally to $3.48 billion this year compared with $3.45 billion in 2014. In 2013, the AUM had dropped to $2.54 billion. The peak of the AUM at $5.5 billion was seen in 2007, when the domestic stock markets were booming, after which their returns plunged due to the bad name earned in short selling. In 2009, India-focused funds returned 49%.