Asia has emerged as the most appealing region for allocations by fund of hedge funds, according to a Eurekahedge survey of 100 FoHFs globally, of which 36% planned to increase their allocations to Asia ex-Japan hedge funds in the next three months. It compares favourably to Japan (16%), North America (19%), Latin America (15%) and Europe (12%).

However, one of the reasons for the strong demand for Asian hedge funds – which has been steady for the past three years – is due to a paucity of strategies that meet investors’ criteria, according to a prime brokerage executive in Hong Kong. “The reason [demand] continues to remain high is that there is an insufficient supply of high-quality funds to meet the demand.”

Furthermore, an asset shift from poor-performing Asia managers to those with better returns is apparently in play, with 60% of FoHFs saying they would maintain allocations with their current portfolio of funds. It was the lowest figure among all other regions, where 70-84% of FoHFs intend to maintain existing allocations. Yet only 4% say they would decrease their allocation to Asian hedge funds.

In March, Asia ex-Japan funds saw $200 million in net outflows through redemptions, according to data provider Eurekahedge. An additional $200 million of performance-based net outflows – based on an average loss of 1.98% last month – lowered total Asian hedge fund assets to $112.1 billion.

“With the global economy regaining some strength over the last few months after a period of uncertainty, we expected some portfolio rebalancing and anticipate this capital to be reallocated within the hedge funds industry,” says Eurekahedge in its latest report.

The FoHF industry, which Eurekahedge estimates had $586.2 billion in AUM as of February, is an important source of capital to Asia’s smaller and younger hedge funds. However, the proportion of FoHFs which invest solely in Asia-Pacific hedge funds dropped to 9% in 2012, from 14% in 2006.

Money coming into the region is now more likely to come from FoHFs with a global mandate, which comprise 40% of the industry, up from 14% in 2006.

K2 Advisors, a US-based FoHF, plans to expand its operations in the region in the coming years, given the interest globally in having Asian exposure, according to James Rice, head of the international group at the firm.