Hedge funds recorded the best performance in six years in 2009 and are likely to perform better this year, especially in the Mena region, as the hedge fund managers will show an increased risk appetite amid improvement in economic scenario, said industry players.
"I think 2010 will prove to be a better year for hedge and traditional fund managers, but this would be towards the latter part of the year. Mena markets' performance would have to stand out and, maybe, buck the emerging market trends before that happens," said Haissam Arabi, CEO and Fund Manager for Gulf Mena Alternative Investments.
"Mena proved resilient during the last few weeks of emerging markets and commodities sell-off. These are a few early signs of decoupling, in my opinion, and if it persists, it alone will raise investor risk appetite among Mena managers and markets," Arabi added.
According to an industry report by hedgefund.net, HFN Hedge Fund Aggregate Index was up 19.4 per cent in 2009 and 1.38 per cent in December. The performance last year was the best since 2003 and second best in 10 years, the report said.
The performance of Mena funds was better than that of other funds worldwide, especially in December. Mena funds are likely to maintain that position in January too, said analysts. "Last year was extremely good globally as well as for the region. While performance in December was relatively lower, we expect January to be better, especially for Mena funds," said Hedi Ben Mlouka, Managing Director, Duet Group.
As the economic environment improves, the fund managers expect their risk appetite to improve. "Economic situation has started to improve and we expect risk appetite of fund managers to improve this year, particularly for the region," said Mlouka.
According to the report, total industry assets rose half a per cent to an estimated $2.042 trillion (Dh7.49trn) and mortgage strategies produced the highest returns followed by convertible arbitrage.
The report said performance in December was driven by distressed and emerging market-focused strategies.
However, the sector is still feeling the impact of the financial crisis, it said.
"On the surface, 2009 appeared to be a redeeming year for the hedge fund industry. Nearly 80 per cent of all funds in the HFN database were positive for the year and investor flow trends turned positive in May. When looking at the industry over a two-year period, the typical length of a lock-up, the industry is still feeling the impacts of the financial crisis. Nearly two-thirds of all funds were below their high water marks at year end and only 23 per cent of funds were positive in both 2008 and 2009," said the report.
As the performance in 2010 is expected to improve, a significant improvement would be visible only by the second half of this year, said fund managers.
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