Emerging markets hedge funds saw capital inflows in May accelerating as Middle East tensions deepened, fuelling gains across Latin America, India and Japan strategies.
According to data released by research firm Hedge Fund Research (HFR), the HFRI EM: Latin America Index rose +2.1% in May, bringing its year-to-date (YTD) gain to +11.3%. Meanwhile, the HFRI EM: India Index advanced +4.5% in May, supported by equity markets and relative economic stability despite global uncertainty.
Geopolitical risk — particularly military escalations in the Middle East — drove market shifts, notably in energy, shipping, and trade, giving hedge funds focused on emerging markets a performance edge. The broader HFRI Emerging Markets (total) Index climbed +2.2% in May and +4.8% YTD, comfortably outpacing the +1.5% YTD gain of the HFRI Fund Weighted Composite Index, which tracks both developed and emerging market strategies.
Japan-focused hedge funds also delivered impressive results, with the HFRI Japan Index posting a +8.1% gain YTD through May. Elsewhere, the HFRI EM: MENA Index rose +5.1%, while the HFRI EM: China Index gained +4.5% in the same period, highlighting the diversity of regional alpha within emerging markets.
Hedge funds’ May inflows hit $6 billion: Citco
Crypto-exposed hedge funds staged a comeback in Q2, according to the data. The HFR Cryptocurrency Index surged +15.2% in April and May combined, despite being down -10.2% for the year. These gains were driven by investor interest in blockchain and digital assets, particularly in Asia and the Middle East.
HFR recently expanded its cryptocurrency strategy classifications, introducing 11 specialised sub-strategies to better reflect the fast-evolving digital asset landscape.
In terms of assets under management, total capital in emerging markets hedge funds reached $259 billion at the end of Q1 2025 — the highest since Q4 2021. Asian hedge funds alone accounted for $132.7 billion, a slight quarterly increase.
“Emerging markets hedge funds have successfully managed risk between uncertain geopolitical/military conflicts and evolving trade/tariff risk, with wide ranging impacts across energy, trade, currency, technology and equity markets,” stated Kenneth J. Heinz, president of HFR. “Cryptocurrency volatility also surged through mid-2025, with managers navigating dramatic policy shifts and innovative platforms and sovereign initiatives. As these risks not only shift and evolve but converge it is likely that leading global institutions and investors will increase allocations to innovative, sophisticated EM and cryptocurrency hedge funds for specialized access to these powerful trends.”
