The HFRX China Index posted a gain of 50.4 per cent in 2009, compared with a gain of 20.1 per cent in the HFRI Fund Weighted Composite Index, as emerging Asian financial markets led the recovery of global equity markets from the previous year’s losses, says Hedge Fund Research.

Investors remained cautious despite this performance, withdrawing nearly $11 billion from Asian funds over the year – although this was due to big withdrawals in the first half, as net flows turned positive in the second half of the year.

However these withdrawals were more than compensated for by strong investment performance, which boosted assets under management in Asian hedge funds by $15.7 billion over the year to $76.3 billion, the highest level seen since the third quarter of 2008.

Asian-focused hedge funds make up 15.1 per cent of global funds, but are characteristically smaller, with assets in these funds at only 4.8 per cent of global hedge fund assets. China alone is now host to 2.65 per cent of all hedge funds worldwide. To put this into context, Europe is host to 11.78 per cent of funds, and 49.09 per cent are situated in the Americas.

“Recent developments in China, including the government’s approval of stock index futures in the Chinese capital market, will allow investors more flexibility in accessing this growth and are likely to contribute to significant growth in the Asian hedge fund industry in coming years,” said Ken Heinz, president of hedge fund research.

In the global hedge fund industry last year assets grew by nearly $260 billion from their trough in the first quarter, to reach $1.6 trillion at the end of the year. This was due to performance, as investors withdrew $131 billion over the year. Despite this assets remained below their peak of $1.93 trillion in Q2 2008.