HONG KONG Nov 14 Asian hedge funds staged a turnaround in October, recording their best start to a quarter since July 2009 as global financial markets rallied on hopes Europe was closer to containing its debt crisis.
The industry is headed for its first negative year in Asia since the 2008 financial crisis and is bracing for more volatility as the euro zone crisis continues.
Regional funds, as measured by the Eurekahedge Asia index, rose 2.43 percent last month, while the Mizuho-Eurekahedge Asia Pacific ex-Japan index, which measures the performance of larger funds, rose 5.9 percent.
The turnaround ahead of the crucial December quarter redemption period is a major relief for fund managers nursing wounds from an about 9 percent drop in the Eurekahedge Asia index between September and August.
"Asian hedge funds seem to have caught the rally partially in October, with a majority in positive territory for the month," said Aradhna Dayal, Hong Kong-based editor of industry tracker AsiaHedge.
AsiaHedge data shows that the biggest gainers of the month have been Australian long/short funds with gains of 7.6 percent.
"Having said that, most Asian managers we speak to continue to be cautious and have preferred to take some pain on the upside rather than participate aggressively in the rally."
Funds such as the $1.7 billion Value Partners Classic Fund rose 15.3 percent, making a major turnaround from a near 20 percent drop in September and 7.5 percent in August, according to a source with access to the fund's return.
The $3 billion Platinum Asia Fund rose 9.3 percent in October, while the $1.6 billion Dragon Billion China Fund - Class A rose 5.6 percent, the source said.
Asia-focused hedge funds recorded a net outflow of $1.9 billion in September, their first monthly outflow in 17 months, forcing hedge fund managers to look for capital preservation as market turmoil erased year-to-date gains for many of them.
Last month, Asian shares as measured by the MSCI AC Asia index rose 6 percent, higher than the average returns of the Asian fund as defensive portfolios and high cash levels capped gains.
For some, the rally helped cut losses sustained earlier in the year.
New York-based Alkeon Capital Management LLC's Asia hedge fund surged 26 percent in October, its biggest monthly gain since launching in 2007, after a 27.3 percent loss in September, an investor letter seen by Reuters showed.
The $70 million Springs China Opportunities fund rose about 7 percent, recovering its losses a month ago, said Jenny Tian, Springs Capital's Hong Kong-based managing director.
"Our top positions performed pretty well and we had a high net exposure," she said.
The $250 million China-focused credit hedge fund, Prudence Enhanced Income, gained 4 percent to erase its entire year-to-date loss.
The $441 million K2 Australian Absolute Return Fund gained 13.2 percent, while the Boyer Allan Greater China Fund gained 8.4 percent, according to fund performance data seen by Reuters.