The media has been full of reports of major growth among the Asian economies. In addition, equity markets in China and throughout Asia have, for the most part, been on a tear in the second quarter.

So it is no major surprise that Hedge Fund Research (HFR) reports that Asian Hedge Funds have recorded their strongest performance in almost ten years.

The HFRI Emerging Markets: Asia (ex-Japan) Index gained 18.86 percent during the quarter, the strongest quarterly performance gain since 4Q 99, when the index gained 21.36 percent. Performance-based asset gains in the second quarter totaled $6.8 billion for Asia-focused funds, while investor withdrawals declined to $3.6 billion, a sharp drop from the more than $17 billion withdrawn in the previous two quarters combined. Overall, assets in the Asian hedge fund industry increased by $3.2 billion to $68.2 billion, the first increase since the second quarter of 2008.

"Investors looking to access growth in 2009 and in coming years will be allocating to Asia-focused hedge funds," said Kenneth Heinz, president of Hedge Fund Research. "As the Asian hedge fund industry continues to evolve, the diversity of strategy offerings continues to increase and more funds are locating in Asia, enhancing the robustness and appeal of the industry for global investors."

The HFRX China Index, a composite of funds focusing specifically on investing in China, gained 19.82 percent in the second quarter and 35.86 percent in the first half of 2009. Those numbers represented the best six-month performance since the index's inception in January 2005.

Investors seem most pleased with the China hedge fund gains since they come with less volatility than China's equity markets."While gains in hedge funds focusing on China are comparable with broader Chinese equity markets over the past three years, hedge funds have posted these gains on significantly lower volatility, creating attractive risk-adjusted performance," notes an HFR report.

Over the last three years, the HFRX China Index has gained 69.4 percent cumulatively versus aggregate gains of approximately 77 percent by the broad-based Shanghai Composite; however, the HFRX China Index has produced these gains on an annualized volatility of 16.9 percent, while the Shanghai Composite has experienced an annualized volatility of 42 percent.

Asian hedge funds are finding a home in China. HFR reports that hedge fund firms investing in Asia are continuing to locate in China, which is now home base to the second-highest number of Asia-focused hedge funds. The percentage of Asia-focused hedge funds located in China increased to 23.6 percent, a jump of over 5 percent from one year ago.