Indian hedge funds beat Asian, EM peers; provide 6.6% returns in May

Provide 6.6% returns in May; rebound comes after retreat in April as 2nd wave took hold

Indian hedge funds outperformed their counterparts in other emerging markets (EMs) and in Asia overall with returns that were at least five percentage points higher last month than for funds investing in other markets.

While EM hedge funds were up 1.56 per cent, and Asia-focused funds gained 1.05 per cent, India-focused hedge funds jumped 6.61 per cent, according to a Business Standard analysis of data from global tracker Eurekahedge (part of data provider HFM).

The returns are based on the monthly data of the Eurekahedge India Hedge Fund Index, Eurekahedge Emerging Markets Hedge Fund Index and the Eurekahedge Asian Hedge Fund Index. The indices are used to track the performance of funds based on the market in which they invest. Hedge funds are investment vehicles that often make use of sophisticated strategies to beat the market.

Indian hedge funds had underperformed their peers in April. Returns were 0.4 per cent below EM funds, and 0.18 per cent below Asian funds. India’s Covid-19 cases were on the rise in April. They rose from around 81,000 cases a day at the beginning of April to more than 400,000 a day by the end of the month, shows data from tracker Covid19india.org. Cases had fallen to around 127,000 a day by the end of May coinciding with a bounce in returns.

The S&P BSE Sensex, whose returns are considered indicative of how the market is doing, was up 6.5 per cent in May. It had fallen 1.5 per cent in April. It has since gained another 1.2 per cent in June, touching an all-time high of 53,126.73 on Monday.  

Many hedge funds are looking to mirror the index performance rather than take riskier bets, according to Daniel GM, founder-director of PMS Bazaar, which tracks such funds in India. Lack of clarity on account of the pandemic has meant that large outperformance has become rarer, barring some who may have taken some tactical calls, according to him.

“They are also not certain of (the) future,” he said.

Outperformance can always pose a challenge for fund managers but there are opportunities in the current environment too, according to Vikaas M Sachdeva, chief executive officer at Mumbai-based Emkay Investment Managers, which runs such funds.

“I think there are pockets of excellence even now,” he said.

Hedge funds in India operate as Category III Alternative Investment Funds (AIFs). They have a minimum investment of Rs 1 crore. Such funds had seen a drop in commitments in 2020. The total value of commitments was down from Rs 48,151.4 crore in December 2019 to Rs 46,824.9 crore in December 2020, according to data from the Securities and Exchange Board of India.

The $2.4-trillion global hedge fund industry also suffered a similar trend, according to the Eurekahedge Report for May 2021. Assets under management (AUM) suffered as investors withdrew capital, according to the note.

“In 2020, the industry recorded performance-driven gains of $37.4 billion, but this was offset by $91.5 billion of investor outflows, which was largely driven by the $85.9 billion outflow recorded in the first quarter due to the Covid-19 outbreak. As of May 2021, the industry has recorded AUM growth of $124.1 billion driven by performance-based gains of $78.3 billion and $45.9 billion of investor inflows,” it said.