The start of the year was a generally poor one for emerging markets and hedge funds in this sector were unable to defy the trend.

Hedge funds focused on emerging markets unsurprisingly felt the pain in January as equity markets and other sectors were hit that month, figures show. 

According to Hedge Fund Research, its HFRI Emerging Markets measure fell by 5.4 per cent in January. For the whole of 2015, it fell 3.2 per cent. 

Total emerging market hedge fund capital shrank by $8.5 billion in January to $182 billion, more than reversing the $7.5 billion gain made during 2015, the Chicago-headquartered research firm said.

Steep performance losses across all emerging market regions contributed to January’s sharp asset decline. The HFRI EM: China Index fell 10.0 per cent in January, which followed three consecutive months of gains and a 2015 return of 6.0 per cent. This volatile index gained 23.0 per cent through May 2015 before falling 19.0 per cent from June through September. 

The Shanghai Composite Index got off to a lousy start for the year, dropping by more than 22.6 per cent in January, following a 2015 gain of 9.4 per cent in 2015.

Total capital invested in Asian hedge funds also fell by $6.6 billion in January, after posting a narrow asset decline of $700 million in the full year of 2015. Investors redeemed over $800 million from Asian hedge funds in the fourth quarter of 2015, roughly the same amount withdrawn in Q3. 

Other Asian hedge fund indices posted similar performance in January, as the HFRI EM: Asia ex-Japan Index fell 8.5 per cent, while the HFRI Japan Index declined 3.6 per cent.

Hedge funds investing in the Middle East region also experienced steep losses in January, with the HFRI MENA Index falling by 6.2 per cent for the month, following a decline of 6.7 per cent in 2015. Total investor capital invested in Middle East-focused hedge funds fell to $3.8 billion in January.

Hedge funds investing in Russia and Latin America also posted losses in January, though these losses were modest relative to other emerging market regions. The HFRI EM: Russia/Eastern Europe Index declined 1.9 per cent for January, after gaining 5.5 per cent in 2015. Total capital invested in Russian-focused hedge funds fell to $26.4 billion as of end-January. The HFRI EM: Latin America Index posted the smallest decline of the major EM regions, with the index falling 1.8 per cent in January.