Asia’s hedge fund assets are predicted to hit an all-time high of $180 billion by the end of this year as investors target returns in a region with healthy economic growth.

Regional industry assets reached a peak of $176 billion in 2007, but in the following two years were eroded by large redemptions, leading to the closure of several funds in the region.

The sector saw $2.5 billion in net inflows for the first three months of 2011, bringing total assets under management to $131.3 billion, finds data provider Eurekahedge.

Asia-based hedge funds have seen steady AUM growth since May 2010, with investors drawn by the industry’s strong performance over the past two years, says Farhan Mumtaz, senior analyst at Eurekahedge.

Allocations from Asia-based investors this year “will be at a record high, or at least a greater proportion of the total than in previous years”, predicts Mumtaz.

European investors, which in previous years accounted for about 60% of Asian hedge fund assets, are also making a return to the market, after losing some of their risk appetite amid the eurozone crisis last year.

“We do have anecdotal evidence of [European investors] coming down to Singapore and Hong Kong to meet managers and subsequently making allocations,” says Mumtaz.

Asian hedge funds, which have returned 28.07% over the past four years, have performed well compared with other alternative investment products such as long-only absolute return funds, which gained 12.88% during the same time period, and even fund of hedge funds, which have yielded 4.69%, according to Eurekahedge’s latest statistics.  

Asia ex-Japan hedge funds returned 2.18% in March, beating regional peers in North America and Europe – which had flat performance figures –  and Latin America, which had a return of 1.35%.  

Japan hedge funds also did relatively well amid extremely volatile market conditions following last month's massive earthquake, which triggered a tsunami and nuclear crisis.

The Eurekahedge Japan Hedge Fund index was down 1.04% in March, compared with drops of 8.61% and 8.18% in the Topix and Nikkei 225 indices, respectively. Mumtaz credits fast-acting Japan fund managers, who “were able to quickly reduce their exposure after the earthquake”.