As protests continue in Hong Kong, hedge funds based in the region have seen the first negative net outflows recorded by the industry in a decade.
Small to medium-sized funds, overseeing up to US$500 million in assets, have "bore the brunt" of investor outflows since the beginning of the year, according to a research report by Eurekahedge.
Net investor redemptions from Hong Kong-based hedge funds totaled US$300 million over the first three quarters of 2019, the lowest since the Global Financial Crisis.
"Long/short equities and multi-strategy are the most commonly adopted strategic mandates within the region, accounting for 59.1% and 10.3% of the industry population respectively," the report said.
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"Looking at geographical mandates, just under a third of the hedge fund managers based in Hong Kong focus on the Greater China region. Global and Asia, including Japan, mandates follow behind with 23.1% and 22.8% population shares respectively."
Hong Kong's hedge funds have long been a major focal point within the Asia Pacific region with the funds currently accounting for US$92.1 billion of assets under management, overseen by 449 hedge fund managers as of August 2019.
"Proximity to the fast-growing economy of China, availability of highly-trained talent base, as well as robust regulatory landscape have successfully attracted both foreign and domestic hedge fund managers to base their operations in the special administrative region," the report said.
It explained that Hong Kong's stability as a financial centre in the region has recently come under scrutiny due to ongoing protests and social unrest in the region, which came as a reaction to the extradition bill proposed by the Hong Kong government in February 2019.
"The protests, which have continued for months have unnerved the markets for fear of capital outflows, eventually culminating in the downgrade of Hong Kong's credit rating by major agencies," Eurekahedge said.