Hedge funds in Japan outperformed all other regions and asset classes during the last quarter of 2005, according to the MSCI Hedge Fund Indi...

Hedge funds in Japan outperformed all other regions and asset classes during the last quarter of 2005, according to the MSCI Hedge Fund Indices Global Summary for 2005. The Japanese alternatives sector showed an increase of 10.8 per cent compared to hedge funds in North America, which languished at the other end of the spectrum increasing only 1.1 per cent. Japanese hedge funds made a jump of 26.9 per cent over the year while funds in emerging markets, the next highest, returned 13.8 per cent, with Europe at 11.4 per cent, according to the survey. The main reasons for the Japanese hedge fund boom are: the recent liberalisation of investment rules, which allows institutions to invest in hedge funds; private investors facing a lack of investment opportunities; the past performance of securities and real estate investments in the country; and growing confidence of the performance of hedge funds from Japanese investors. In a separate study, Asian hedge funds reached $100 billion for the first time in 2005, according to Eurekahedge, a consultancy and research firm. This represents an increase of 35 per cent on 2004’s $74 billion and confirms the trend of Asian hedge funds outperforming their US and European counterparts. Greater market inefficiencies for investors to exploit in Asia is cited by the research as being the main factor in the region’s success, which is in part driven by patchy analyst coverage of small and mid-sized companies. But Asian hedge funds still account for less than ten per cent of the world's total hedge fund market, according to Eurekahedge. The MSCI survey also showed that hedge funds had outperformed the debt market, but had continued to trail behind equities during the fourth quarter 2005. Hedge funds returned 2.2 per cent in the fourth quarter, while equities rose 3.1 per cent. The MSCI World Sovereign Debt Index declined 1.9 per cent. In total over 2005 hedge funds increased 8.1 per cent, equities rose 9.5 per cent and bonds fell 7.3 per cent. Asset flows into hedge funds at the close of this quarter turned negative, according to the MSCI Index, with the exception of two process groups: Security Selection and Specialist Credit. In a continuation of the first three quarters, relative value funds had the largest negative overall asset outflows. The greatest inflows for the quarter were led by Long Bias funds. There has been an overall slowdown during 2005 against previous years, with: $49.6 billion poured into hedge funds in 2003, $50.3 billion in 2004, and just $11.9 billion in 2005.