HEDG Emerging Markets gained 17% on an annualized basis with a volatility of 7.6% during the 36-month period ending November 2006, according to the report. The emerging markets sector in the traditional arena produced similarly strong returns with the MSCI Emerging Markets Index rising 28.4% on an annualized basis over the same period with 17.8% volatility.
Despite a May downturn, the belief that emerging markets hedge funds are facing a financial crisis is ending. Credit Suisse attributes the decline in volatility to a change in investor profiles from high net worth individuals to large-scale institutions.
The report said the Credit Suisse proprietary database shows hedge funds focusing on emerging markets that have grown tenfold since November 1998, when they held $2.6 billion in assets, to November 2006, when they held nearly $32 billion in assets. Assets under management as measured by the HEDG Emerging Markets Index increased by 19.4% in the seven months ending November 2006.
The long-term growth outlook for Emerging Markets Hedge funds is positive despite irregular downturns, according to the report. “Compared to the 1997-1998 periods, emerging markets fundamentals in the current environment remain healthy with corporate profits exceeding expectations, default rates falling to their lowest level in years according to the Bank of International Settlements, disciplined fiscal policies, floating currencies, trade surpluses, paid-off foreign currency debt, and improved corporate earnings and governance,” the report said.