Rajeev Baddepudi, Senior Analyst at Eurekahedge, said China and India have returned the best hedge fund returns.

The extent of the Bear Stearns hedge fund impact in the US is not known yet. Baddepudi feels that emerging markets may see more long, short or multi-strategy funds.

Excerpts from CNBC-TV18's exclusive interview with Rajeev Baddepudi:

Q: What has been the trend of hedge fund investments, particularly in emerging markets, in the last quarter? Where have they spread their hedges?

A: After the short-term correction in February, the last quarter has been more or less in an uptrend. We have seen returns of above 4% every month, especially in Asia excluding Japan, on an average from funds allocated to the region. The best returns are mostly from hedge funds allocated to China and India, but Asia, excluding Japan, in general has been pretty broad-based in the returns generated.

Q: What has been the quarterly increase in the amount of funds that have come to emerging markets? Do you expect any slowdown in that kind of incremental flows because of problems on account of Bear Stearns hedge funds?

A: All things aside, generally considering such a clear uptrend for a consistent period of time, you would expect the markets to bottom out anytime now. I guess the Bear Stearns’ problem has been kind of vegetating right now. Problems in the US sub-prime mortgage market have been at least identified by players in that market.

As of now, it is still unclear what would be the spill over impact or a contingent effect on investment banks or hedge funds invested in that territory. For instance, you would have high yield dislisted investing funds actually shorting collateralized debt obligation funds. CDOs are instruments that have the underlying security as sub-prime mortgages.

At present, one cannot say which way the prices will sway. What we are seeing currently is only a lot of uncertainty.

Q: What is the view of most hedge funds on India, at this point in time? What strategies are they adopting for this emerging market?