During the second quarter of 2012, one of the sources of expansion in the hedge fund industry was the addition of several new funds focused on investing in emerging markets. The Hedge Fund Review report published in August suggested that emerging markets funds now comprise 14 percent of all hedge funds, which is an increase of 3.5 percent year over year.
Some Geographical Regions Outperformed
While in emerging markets funds in general have performed well during the first two quarters of the year, some regions have significantly outperformed others. The Hedge Fund Research (HFR) “Emerging Markets: Latin America” index has seen a gain of 3.9 percent through the end of July, despite one of the largest constituent equity indexes, Brazil’s Bovespa Index, experiencing a decline.
The “HFR Russia/Eastern Europe” index rose 2.3 percent in the first seven months of the year, while the region’s largest equity index also experienced a decline. These two examples show the performance of emerging market hedge funds in comparison to the passive indexes within their geographical areas of focus.
Fundamental Strategies Dominate Emerging Markets Funds
Emerging market funds have been historically dominated by fundamental strategies, where investments are strategically picked based upon thorough research of companies or projects. While this remains true today, with 60 percent of funds by assets under management (AUM) employing fundamental strategies, several new funds are focusing on alternative strategies, such as currency trading, fixed income investments and sophisticated arbitrage plays. Macroeconomics based fund strategies now account for 13 percent of AUM, while fixed income focused funds represent 10 percent of dollars invested in the emerging market hedge funds.
What this Means for Job Seekers
The expansion of emerging market funds will be welcome news to job seekers that have experience operating or investing in attractive foreign markets. The leading geographical regions for investment include Latin America, Eastern Europe and South Asia. There is also some increasing interest in North Africa and the Middle East, though these investments are generally highly correlated with natural resource interests. Individuals seeking employment with strong experience in these markets could be seen as a valuable resource by hedge funds, especially when attempting to overcome the typical barriers to foreign investment, such as political issues, cultural norms and language.
That considered, the hedge fund industry as a whole is still quite weak, and opportunities are few and far between relative to the peak 5 years ago. The instability and uncertainty should definitely be factors that job seekers should consider prior to seeking employment in the sector. However, the excitement of working on foreign investments is certainly appealing, and the experience can be life changing in more ways than just a great addition to your resume.