Big money is working its way into small places.
Deep-pocketed pension funds, endowments and other institutional investors are pouring money into a place they’ve avoided for years: emerging-market hedge funds.
In December, the California Public Employees’ Retirement System, or Calpers, allocated $100 million of its $206 billion to Vision Investment Management, a Hong Kong firm that invests in hedge funds specialising in Asian emerging markets. The University of Texas endowment and pension funds for state employees in New Jersey and Pennsylvania, two of the biggest in the US, also have allocated millions to emerging-market hedge funds in the past year.
The move is part of a shift in the fortunes of emerging economies. But the risk of economic instability has grown as more cash wielded by fast-trading hedge funds moves into these often-fragile markets.
The net amount of money flowing into hedge funds that focus on emerging-market investments rose 13 percent to $5.3 billion in 2005 from $4.7 billion in 2004, bringing total assets to $44.5 billion, according to Chicago-based Hedge Fund Research Inc. The firm’s HFRI Emerging Markets Index last year jumped 21 percent, compared with a 3 percent gain by the Standard & Poor’s 500-stock index.
The increase came as markets from Brazil to China thrived during a boom in commodities prices. It marked a sharp turnaround from 2002, when total assets in emerging-market hedge funds plunged by $5.7 billion on the heels of the Sept. 11, 2001, terrorist attacks and a recession in the US.
