The first six months of this year haven't been profitable for hedge funds exposed to Japan and Asian funds in general have seen capital decline.

Hedge funds investing in Japan fell in June by 2.7 per cent, industry figures show, dragged down by the country’s falling stock market and translating into a 6.1 per cent decline since the start of this year. For Asia-focused funds as a whole, capital declined.

Hedge Fund Research, the Chicago-based organisation tracking the sector, said its HFRI Japan Index fell by the largest monthly amount since February. In June, the Nikkei 225 benchmark of equities fell 9.6 per cent for the month, bringing the Nikkei’s decline in the first six months of the year to 18.2 per cent. T

For Asian hedge funds more broadly, total capital invested fell to $109.7 billion which, while representing only a small decline of $2.1 billion over the prior quarter and a decline of over $9.2 billion from year end 2015, brings total Asian hedge fund capital to the lowest level since the third quarter of 2013.

Capital outflows increased slightly over the prior quarter to $2.5 billion, though this represents the largest quarterly outflows since 2Q09. 

Globally, total hedge fund capital increased to $2.898 trillion as of 30 June, an increase of $42.06 billion during the quarter. The HFRI Fund Weighted Composite Index® gained 2.0 per cent in the second quarter, HFR said

Hedge funds that invested in China and emerging Asia were able to ride out market turmoil caused by the UK’s vote to leave to the European Union, because they benefited from short exposures to currencies and commodities, and included quantitative commodity trading advisors and event driven exposures such as distressed and shareholder activists.

The HFRI EM: Asia ex-Japan Index gained +0.8 percent for June and +1.4 percent for 2Q16, while the HFRI China Index posted a narrow gain of +0.06 percent for June. The Shanghai Composite Index fell by 2.5 per cent in the second quarter and has declined 17.2 per cent for the first half of this year after steep losses in the first quarter.

The number of Asian hedge funds was essentially unchanged over the prior quarter and year-end 2015 at 1,170. Asian hedge fund capital by sub-region was also little changed for Asia ex-Japan at $48.5 billion, while capital invested in pan-Asian hedge and Japan funds fell to $36.4 billion and $24.9 billion, respectively, HFR said.

“Brexit and the acceleration of the Japanese Yen contributed to declines across Japanese-focused hedge funds, though these funds significantly outperformed the Nikkei, which suffered steep losses in 1H16”, Kenneth Heinz, president of HFR, said.