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India an oasis for hedge funds amid sub-prime turmoil

In a relative sense, the much admired and criticised hedge funds have had a good run in India in July and August, writes Narayanan Madhavan.

business Updated: Sep 23, 2007 22:44 IST
Narayanan Madhavan
Narayanan Madhavan
Hindustan Times

They may be getting roiled across the world markets, but in a relative sense, the much admired and criticised hedge funds have had a good run in India in July and August, when the funds were subject to turmoil worldwide in the wake of the subprime loan crisis, and also much of this year. (HFN), an agency that studies the flows and returns of some 7,000 hedge funds, says India-focused hedge funds outperformed the benchmark Sensex in August, and also in a one-year view to July.

“Funds investing in India’s markets typified the dislocation of returns to regional/country equity benchmarks seen in August. In the three months prior to August, funds investing in India returned an average of +12.39 per cent, slightly outperforming the Sensex which was +12.10 per cent,” HFN analyst Peter Laurelli said.

In the crunch week of mid-August when bad news on high-risk sub-prime lending shook global markets, the Sensex slid 6.75 per cent, and despite rallying 9.5 per cent ended the month down only slightly, while the average India focussed fund was down 4 per cent in August, Laurelli said.

In the first seven months this year, these funds have recorded an average return of 19.6 per cent, against a fall of over 22 per cent in Sensex during the same period. The average return of India-focused funds were 53.63 per cent in the one-year period through July, which outpaced 44.74 per cent rise in the Sensex during same period

However, the average returns on India funds was 21 per cent and 27.86 per cent in 2005 and 2006, respectively, whereas the Sensex returned 42.33 per cent and 46.7 per cent, respectively, PTI said, quoting HFN data.

India-focussed funds generated an average return of 3.09 per cent during July this year — a month when most of the developed markets moved downward.

Hedge funds are portfolio funds often backed by high net-worth individuals (HNIs). They specialise in risky positions and volatile trading. The sub-prime crisis put huge redemption pressures on many hedge funds.

In India, they operate through participatory notes deployed by foreign institutional investors (FIIs).

First Published: Sep 23, 2007 22:38 IST