Emerging markets hedge funds are doing very well since 2002 (about 17% annual). What are the risks? Here are some points for concern: 1. Before 2002 the emerging markets hedge funds performed poor. In the 1998 hedge fund crash the emerging markets drawdown was very badly, about 40% (CSFB Emerging Markets Index). The broad market CSFB Index was down only about 10%. 2. Emerging markets are less developed and less liquid. Thus vulnerable for crashes. 3. recently the Asia markets however are more hedge fund friendly such as the increasing liberalization of short selling rules. 4. Unlike stock markets bubbles, hedge funds canât have bubbles. Only when they have a high exposure (unhedged) to equity markets. My questions are: 1. Is the reason for the booming Emerging markets hedge funds that these markets have much more imbalances (unlike other markets) which are profitable for hedge funds? 2. Could it be that in 1998 the emerging markets hedge funds had a high exposure (unhedged) to equity markets because hedge funds could not really hedge in these markets? This could explain the 40% drawdown in 1998. 3. Now that this situation has changed, is such a drawdown unlikely in the future?