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India-focused hedge funds ranked among world's top performers

Hedge funds investing in India are not making as much headlines as they did during the previous bull run in 2007-08, but they seem to be making money for investors . Good enough to be ranked among the best-performing hedge funds globally, according to analysts at Singapore’s fund research house Eurekahedge.

The Eurekahedge Indian Hedge Fund Index returned over 5% in the first eight months of 2010 vis-à-vis 2% gains by benchmark Sensex in the same period. The numbers for September were not available. Asset managers attribute the decent performance of India-focused hedge funds to the buoyant stock market, ‘long only’ strategies by their managers and gains in mid-cap shares.

Within Indian hedge funds, 68% of the funds employ ‘long-short’ equity strategy — a mix of buying assets as well as short-selling them — and more than 70% of the funds invest in equities, said experts.

“Hedge funds are active in Indian equities,” Farhan Mumtaz, senior analyst, Eurekahedge told ET. “Funds with global and emerging market mandates have also increased their allocations to India,” he added.

Longer investment time-frame has helped hedge funds log better returns this year. Funds belonging to asset managers like Q-India, Halbis, FMG, Baer Capital and Insynergy have all outperformed benchmarks and key hedge fund indices during the considered period. The case was different in 2009, when the Eurekahedge Indian Hedge Fund Index returned just 52% against 76% logged by the Sensex.

According to Mr Mumtaz, most hedge funds have turned cautious and the proportion of ‘long-short’ strategy has come down from 80% in 2008-09 to 68% in 2010.

Long-short strategies involve allocating a specific percentage of the corpus to buy securities that are expected to go up while short-selling those expected to decline in value. When balanced correctly, long-short strategies provide absolute returns with low correlation to the benchmark.

Funds are employing broader mandates (such as multi-strategies) in their attempt to not remain dependent of price momentum of stocks. “Hedge fund managers tried complex strategies in 2008 and failed, as a result of which they been reasonably defensive in 2009 and 2010. They have now managed to get some good sectoral and stock calls,” said Alok Sama, president, Baer Capital Partners.

According to him, hedge funds have managed to log higher returns by investing in liquid mid-caps. “Most of them have been long-term bets. However, buying Indian shares is a bit difficult now since most counters are trading at expensive price levels. The current market rally has been fuelled by excess liquidity,” added Mr Sama.

Steady investment returns have resulted in the swelling-up of asset bases of most India-focused hedge funds over the past few months. Average asset under management of an Indian hedge fund is estimated at $65 million by fund researchers. Most of the money (for India-focused funds) is coming from hedge funds, family offices and high net worth investors.

Source: Economic Times

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