The strong performance of emerging markets, especially China and India, has led to a pick-up in interest, say industry experts. But don't expect a fully fledged comeback just yet.
Amid 18 months of poor performance, China-focused strategies have suffered heavy outflows and will likely continue to see low demand this year, says eVestment's head of research.
Barriers to entry and failure rates have been rising in the "ridiculously concentrated" hedge fund sector, but Greater China managers are a bright spot, says Jo Murphy, Asia-Pacific MD of CAIA.
Asia-focused hedge funds – especially India and Japan strategies – continued their heavy slide last month, while emerging-market and global mandates made slight gains.
Systematic risk has abated leading to a hedge fund investment trend towards markets being driven by stock picking.
Japan-focused hedge funds have suffered from disappointing inflows recently, new data shows, but long-only investors are still confident about the country's equity prospects.
They have risen 7.26% to date this year, stirring expectations of stronger inflows, while long/short equity funds lead capital-raising, find two reports.
Firms with over $1 billion in hedge fund assets accounted for most of last year's AUM growth, while the population of smaller players shrank, according to eVestment.
Globally hedge strategies ended the first half with respectable gains, with India funds in particular surging on post-election euphoria. But China and Japan funds have posted falls this year.
Asia-focused hedge fund managers who took long positions on tech and healthcare stocks globally and particularly in China were caught out by last month's tech sector rout.
Global macro hedge funds are blamed for a sell-off in Japanese stocks that has led to volatile markets, with local managers struggling to make performance gains.
Strong performance contributed to hedge fund asset growth of 16% last year, but US tapering-induced market volatility has resulted in a wobbly start to 2014 for managers.