According to Bloomberg Business, 2025 was a banner year for Asia-focused hedge funds, with the Eurekahedge Asian Hedge Fund Index gaining 14% for its best showing since 2020. The equity-focused funds posted the most stunning numbers, driven by a 28% surge in the MSCI China Index after DeepSeek’s AI breakthrough sparked a broad rally. Hermes Li’s $14 billion Aspex Management gained 26% in a higher-fee share class, while many smaller funds like the MY Korea Tactical fund skyrocketed 86.2%. The boom was fueled by corporate governance reforms in Japan and South Korea—where the Kospi surged 76%—and by macro funds capitalizing on global volatility, with events like new US tariffs and ongoing conflicts creating trading opportunities.
The AI and Reform-Fueled Rocket
Here’s the thing: the numbers are eye-popping, but the story is really about two converging engines. First, you had DeepSeek’s AI breakthrough acting like a massive adrenaline shot for Chinese tech and, surprisingly, a much wider range of industries. It wasn’t just a tech stock story; it lifted healthcare and mining too. That’s a classic sign of a sentiment-driven rally where a single catalyst renews faith in an entire market. Then, you had these parallel, structural reforms in Japan and South Korea forcing companies to get their acts together—unwinding cross-shareholdings, focusing on core business, and boosting shareholder returns. Basically, the stars aligned for anyone betting on Asia’s corporate evolution.
Small Funds, Big Wins
Now, the giants like Aspex did well, sure. A 26% return for a $14 billion fund is seriously impressive. But look at the table. The real show-stealers were the smaller, nimbler players. A fund focused on Korean corporate events returns 86%? Another China-focused fund using AI and alternative data gets 67.5%? That’s wild. It highlights a key advantage: they can dive into niche opportunities and get in and out of positions without moving the market themselves. In a year where specific country and thematic bets paid off huge, that agility was everything. A massive multi-strategy fund can’t always pivot that fast.
The Macro Side of the Coin
And let’s not forget the macro traders. While equities were riding a wave of optimism, these funds were feasting on fear, uncertainty, and volatility. “Liberation Day” tariffs, Middle East conflicts, AI bubble fears in the West—it’s a recipe for dislocated prices across currencies, rates, and commodities. The best, like Rhicon, pulled in over 17%. But it wasn’t a guaranteed win. Look at Astignes Asia Rates, which lost 3.3%. It goes to show that even in a volatile year, you can still pick the wrong direction. Macro is always a high-stakes game, and 2025 provided the perfect, chaotic playground.
So, What Now?
So, is this repeatable? That’s the billion-dollar question. A lot of these returns came from one-off regulatory reforms and a singular AI hype cycle. You can’t count on the Kospi jumping 76% every year. The challenge for these funds in 2026 will be proving they can generate alpha when the easy, structural wins are priced in. Can the activist funds find new, undervalued targets? Can the quants and AI-driven funds keep their edge as everyone else piles into similar data strategies? Last year was a perfect storm of opportunity. The real test of a manager’s skill is what they do when the winds die down.
