SINGAPORE / HONG KONG - Asian hedge funds beat global peers in August as Europe's deepening sovereign debt crisis and Standard & Poor's (S&P) cut to the US credit rating sparked the worst month for the industry in almost three years.

About 80 Asia-focused hedge funds reported an average 2 percent decline and median loss of 1.5 percent last month, according to data from Credit Suisse Group AG's prime brokerage unit. Hedge funds worldwide lost on average 3.5 percent, the worst month since October 2008, according to Hedge Fund Research Inc's HFRX Global Hedge Fund Index.

Funds run by Vulpes Investment Management, Titan Capital Group LLC and Juggernaut Capital Management helped Asian hedge funds last month overcome a history of underperformance in market slumps.

Asian strategies lost 21 percent in 2008, compared with the average industry decline of about 11 percent, according to Singapore-based Eurekahedge Pte.

"Asian hedge funds have done a great job of managing risk amid volatile markets," said Matt Pecot, head of Asia-Pacific prime services at Credit Suisse in Hong Kong. "This resilient performance is a strong affirmation of the increasing sophistication of Asian managers, and a positive signal for greater capital flows into hedge funds active in the region."

Investors poured $2.6 billion of new capital into Asia-focused hedge funds in the second quarter, according to Hedge Fund Research. Asia-focused hedge fund assets stood at $89.5 billion in the second quarter, accounting for about 4 percent of the $2 trillion industry, according to the Chicago-based company.

The MSCI Asia Pacific Index declined 8.6 percent last month - the most since May 2010 - amid concern global economic growth is slowing as Europe's sovereign debt crisis spreads and after S&P cut the US sovereign rating. The measure has slumped 14 percent from this year's high on May 2.

"The industry in Asia was already cautiously positioned after May, so funds entered August with low gross and net exposures, and traded the markets reasonably well," said Stephane Pizzo, founder of Singapore-based Lotus Peak Capital, whose fund fell about 0.75 percent in August.

Asian managers reported returns ranging from a gain of 13 percent to a 16 percent loss, according to Credit Suisse.

About 25 percent of the 80 Asia-focused funds tracked by Credit Suisse reported gains in August, including equity long-short, macro and volatility strategies, according to the Zurich-based company. The returns clustered between 2 percent and 5 percent, according to its prime brokerage unit.

"Investors often expect Asian hedge funds to lose money in a down market; that was certainly their experience in 2008," said Ben Happ, Hong Kong-based Asia-Pacific region head of capital services in Credit Suisse's prime services division. "The August performance is evidence of the change that Asian hedge fund managers have made with respect to risk management."

The VIX, a measure of market volatility known as Wall Street's "fear gauge", soared 50 percent to 48 on Aug 8, the biggest gain since February 2007. The gauge fell 4.7 percent to 33.92 last week after increasing for four straight months.

Bloomberg News