India-focused hedge funds, which are now clearly the talk of town, have delivered a return of 19.6 per cent so far this year and are one of the best performing groups of hedge funds in the last five and a half years, says a study by Hedge Fund Net (HFN) — a tracker of such funds.

In the last 12 months through July, the average return for India-focused hedge funds was 53.6 per cent, dwarfing the 45 per cent return on the Sensex.

Hedge Fund Net, which tracks over 7,000 funds the world over, estimated that the total assets managed by hedge funds investing primarily in Indian markets were at $13.97 billion at the end of the second quarter.

This number has moved up five-fold from $2.8 billion in the latter part of 2005, when such investments began to gain a lot of traction.

This sharp increase was a likely result of these funds delivering high returns in 2004, says the report. Since the third quarter of 2005, the average cumulative return produced by these funds was estimated over 72 per cent.

This suggests that the five-fold increase in assets is not only because of higher allocations, but that these allocations have also been well rewarded, Mr Peter Laurelli, Vice-President, HFN, noted in the latest ‘Regional Focus Report on India Focused Funds’.

While India’s returns lagged behind other emerging markets through much of 2001-2002 due to stock market scams and so on, the report says, hedge funds investing in India now trail only China as the best performing region or country of investment focus.

The majority of these hedge funds have been able to provide exposure to the upside while improving their downside risk statistics, the report said.

The average return generated by funds investing in India at that time was 3.09 per cent, well below the Sensex which returned 6.15 per cent.

In contrast, the average return for India-focused funds in 2007 (through July) is 19.5 per cent, almost 7 percentage points above that of the bellwether index.

Source: The Hindu