A recent report by Reuters claimed that only 20 per cent of Asian hedge funds have managed to make a profit so far this year. The report, which quotes the head of UBS Asian prime brokerage David Gray, found that performance ranged from minus 40 per cent to plus 20 per cent for the year.

'This really has been a horrible time for hedge funds. We can clearly see that September and October have been the worst period of returns in recent history, and lower than any period in a row ever,' said Richard Johnston, managing director of Albourne Partners in Hong Kong, a hedge fund and private equity adviser.

The problem, according to Mr Johnston, is that investor sentiment was severely hurt by the collapse of Lehman Brothers in September, which saw many hurrying to redeem their hedge fund stakes for cash.

The problem is compounded for Asian hedge funds because they used flexible monthly redemptions as a means to attract customers, whereas American and European funds followed a more rigid redemption policy.

Now, this is cutting the other way as Asian investors use these flexible redemptions to cash out their holdings, with hedge funds bleeding capital as a result.

'Many people invested in hedge funds via fund-of-funds, with a lot of retail money leveraged into structures. These have now been hit by large redemptions and many of them don't have the liquidity to cover it,' Mr Johnston said.

Already a number of hedge funds have pulled out of Hong Kong, including APAC Greater China Fund, Concordia Advisors and GSA Capital Partners, with a number of others scaling back their operations.

'This should have been a great opportunity for funds. In this region we don't have a liquidity shortage endemic throughout the system. But the retail side is licking its wounds,' Mr Johnston said.

The news on the private equity front is not much better, according to industry insiders.

Private equity funds across the board have seen the value of their listed holdings fall significantly as a result of the financial crisis and its impact on global equity markets.

These freefalling values have also limited the possibility of timely exits, particularly as many firms overpaid for their assets during the bull market.

Combined, these factors are putting a significant dampener on private equity returns.

'In general, it is a challenging time in the private equity sector,' said Jamie Paton, who heads the Hong Kong office of private equity adviser Candover. 'Whether raising funds, committing to investments or seeking an IPO [initial public offering], all of these activities are in some way affected by the global financial turmoil.'

However, unlike the hedge fund space, the structure of the Asian market works in investors' favour, providing some potential opportunities for investors in the medium term.

'US funds made use of a lot more borrowing, whereas in Asia they have been a lot more conservative, preferring to use more equity, so they have been a lot less affected by liquidity issues,' said Tan Wan That, a director at Singapore-based venture capital and private equity firm Aventures Capital Management.

This, he said, puts them in a prime position to take advantage of investment opportunities in Asia, where the fundamentals of many economies are more sound than those in the US or Europe.

This has been reinforced by the announcement that China will be pumping almost half a trillion US dollars into its economy to keep its GDP growth levels above 8 per cent.

'I think it is more a time to be patient and cautious. In the medium term, ambitious entrepreneurs will still wish to grow and there should be opportunities to invest at reasonable valuations,' said Mr Paton, adding that funds would need to scrutinise all deals very carefully.

'Valuation is an important consideration, but the business needs to have strong fundamentals and a robust business model. Further, management has to be high quality to navigate through what will be a tough business cycle.'

Despite these mildly optimistic outlooks potentially watering down some of the bad news in the medium term, the real question is: where will private equity firms get the capital?

With the bottom of the credit crunch nowhere in sight, this is a question all the financial professionals interviewed were reluctant to answer.