India-centric hedge funds post worst performance in Asia

India-focused hedge funds have been among the worst performers in Asia as they have lost a staggering 43 per cent of their net asset values (NAVs) to date in sharp contrast to the nearly 50 per cent return that they gave in 2007. Compared to this, hedge funds of other Asian countries, including China, Japan and Taiwan, have fallen between 20 and 30 per cent.

In September, the Eureka hedge fund index of India-focused funds fell by 12.72 per cent after 45.45 per cent of the 20 index constituents reported their NAVs. This is the worst monthly decline so far this year.

However, Samir Arora, fund manager of Singapore-based Helios Capital, told Business Standard that hedge funds have put up better resistance in falling markets compared to some mutual funds in India. “NAVs of some Indian mutual funds have declined by 60 per cent, while the market has fallen by 55 per cent year to date,” he said.

While these hedge funds lost 12 per cent in June 2008, July and August proved to be less punishing for them. The Eureka hedge fund index was up 1.03 per cent in July, and it lost a minor 2.97 per cent in August.

Most of the top hedge funds had a big exposure to real estate and financial services firms. While the real estate index on the Bombay Stock Exchange is down 83 per cent from its peak of 13,848 in January this year, the market cap of financial services firms has been eroded by 85-95 per cent.

Hedge fund managers earn fat fees, sometimes as high as 20 per cent for giving high returns. However, given their funds’ performances, they may not get any fees at all. The global financial market turmoil, which squeezed fund flows into emerging markets such as India, and apprehensions about the effect of a possible US recession on domestic companies have resulted in Indian investors cumulatively losing over Rs 30 lakh crore in wealth as share prices plunged.

Analysts say a sharp slide in rupee value is also hurting hedge funds as they are getting less number of dollars at conversion.