Last year was the second worst on record for hedge fund performance globally, and Asia firms and strategies fared even worse, as global markets remained unpredictable amid the European debt crisis, risk-on risk-off investor sentiment, and geopolitical turmoil.

Based on data received so far by Singapore-based research house Eurekahedge, Asia hedge funds were down -0.6% in December and -8.5% for the year, as against -4.1% for hedge funds globally.

In terms of strategies, long/short performed worst in Asia, while commodity trading adviser (CTA) funds did best. Eurekahedge's Asia CTA Hedge Fund Index was the only one in the black, up +6.43% in 2011. The macro and event-driven indices were both flat, while the Eurekahedge Asia Long Short Equities index was down -10.32%. The other strategies were down between -2% and -5%.

Perhaps surprisingly, then, more hedge funds opened (130) than closed (127) in Asia last year, compared with 125 closures and 183 launches in 2010.

Having seen net asset inflows of just $2 billion last year, the Asian hedge fund industry now stands at $125 billion, and Eurekahedge predicts it will grow to $140 billion by year-end 2012 through performance and inflows. The firm expects the global hedge fund industry to be $1.9 trillion by the end of 2012.

Alexander Mearns, chief executive of Eurekahedge, cites performance and capital-raising as the two main issues for the hedge fund industry. “You need at least one and preferably both to be successful,” he tells AsianInvestor. “Post Lehman Brothers, in 2009 and 2010 most Asian hedge funds performed well, despite the difficulty in attracting fresh capital. However, in 2011 both capital-raising and performance have remained elusive for most Asian hedge funds.

“Assuming 2011’s macroeconomic conditions prevail throughout 2012 – and it’s Eurekahedge’s view that they will – both this year and well beyond, then running a successful Asian hedge fund business will continue to be a challenge,” says Mearns. “Therefore this is an ideal opportunity for the truly outstanding talent in the industry to be noticed, and indeed over 100 Asian hedge funds were up more than 10% in 2011.”