East Europe, Russia Hedge Funds Pare Losses But Still Underwater

Russian assets had plunged as the stock exchange closed and the rouble posted steep losses before regaining some of the losses as the Russian Stock Exchange partially reopened, figures showed.

Hedge funds operating in emerging markets haven’t had a good
summer, with funds extending the losses apart from some specific
areas. Since January, they have fallen more than a third.

According to Chicago-based Hedge Fund
Research, its HFRI EM: Russia/Eastern Europe Index rebounded
later in the spring/early summer (+26.8 per cent) but the
year-to-date loss is still heavy, at -37.4 per cent.

Russian assets had plunged as the stock exchange closed and the
rouble posted steep losses before regaining some of the losses as
the Russian Stock Exchange partially reopened. In addition to
these geopolitical risks, global inflationary pressures increased
to generational highs and the US Federal Reserve aggressively
raised interest rates.

The various reports of hedge fund data from the likes of HFR have
shown that for the industry as a whole, 2022 has been positive
for macro strategies and those which can profit from volatility –
helping these entities remind people of why they’re call “hedge
funds.” However, certain sectors have been dragged down, and
emerging markets in Eastern Europe have been particularly
affected. 

After seven consecutive months of declines to start the year, the
HFRI Emerging Markets (Total) Index posted its first monthly gain
for 2022 in August, advancing 0.75 per cent and paring the
year-to-date decline to -12.5 per cent, HFR said. Total Emerging
Markets hedge fund assets declined to $249.7 billion in the
second quarter of 2022, down nearly $27 billion from the 2021
year-end AuM record of $276.4 billion.

The investable HFRI 500 Fund Weighted Composite Index, which
includes funds across all regions in both emerging and developed
markets, has fallen by 2.5 per cent year-to-date through
August, with gains in uncorrelated macro and fixed income-based
relative value arbitrage strategies offset by declines in higher
beta equity hedge exposures.

Macro hedge funds have fared well this year. They typically
attempt to profit from broad market swings caused by political or
economic events. The war in Ukraine, for example, and the surge
in inflation and rising interest rates, are exactly the kind of
changes such funds try to tap into.

While Russian-focused hedge funds plunged at the beginning of
2022, other emerging markets” regions posted moderate declines
driven by surging global inflation and the appreciation of the US
dollar.