Record inflows and performance in Q4 2013 has driven total capital invested in the Asian hedge fund industry to an impressive $112.3 billion, according to HFR.

Investor capital has continued to pour into the Asian hedge fund industry over the past few months, as record inflows and performance has driven investor capital to surpass the record level set in 2007, prior to the financial crisis. This bought total capital invested in the Asian hedge fund industry to an impressive $112.3 billion, according to the latest HFR Asian Hedge Fund Industry Report, by global hedge fund industry researcher, HFR.

The research revealed that asset growth for the fourth quarter of 2013 and January 2014 was driven by investor allocations, as well as performance gains. Investors allocated $4.2 billion of new capital to the region’s hedge funds in Q4, the highest quarterly inflows since HFR began tracking in the first quarter of 2008, bringing full year 2013 inflows to $10.5 billion.

“The Asian hedge fund industry has now emerged as the preferred mechanism for both global and Asian investors to participate in the exciting growth opportunities while mitigating complex risks associated with quantitative easing, currency devaluation or prospective RMB appreciation and structural concerns regarding banking institutions. Despite EM-centric currency and equity volatility to begin 2014, investors are likely to increase allocations to Asian hedge funds as these themes evolve in 1H14,” said Kenneth J. Heinz, president of HFR.

Looking more closely at inflows to specific hedge fund strategies, equity hedge and event driven products dominated, with inflows of $2.5 billion and $1.4 billion in Q4, respectively, while macro, including CTA, and fixed income based relative value arbitrage experienced smaller inflows. For the full year, investors allocated $6.9 billion to Asian equity hedge and $2.2 billion to Asian event driven strategies.

Similarly, Asian hedge funds saw strong performance gains in the last quarter if 2013, as the HFRX Japan Index gained six per cent, ending 2013 up 32.8 per cent. Conversely, the HFRX China Index gained 19 per cent in 2013, exhibiting a strong negative correlation to the Shanghai Composite, which declined -6.75 per cent for the year. The full year gain for the HFRX China Index was the best annual performance since the index gained 50.4 per cent in 2009.

Looking more closely at regional allocations, capital inflows were led by allocations into Japanese-focused hedge funds. For Q4, investors allocated $1.7, $1.4 and $1.1 billion, respectively, to pan-Asian, Japan and Emerging Asian hedge fund strategies. For the full year 2013, investors allocated $2.9, $4.5 and $3 billion to each of these regions, respectively.