Asia hedge funds avert disaster on scale of GFC with China reopening

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While investors widely expected China to exit from its zero-COVID-19 policies to revive economic growth, many were caught off guard by the pace of relaxation. The Nasdaq Golden Dragon China Index — a gauge of US-listed China stocks — and Hong Kong’s Hang Seng China Enterprises Index both recovered roughly half of the losses in the previous 10 months in November and December. Big names from liquor maker Kweichow Moutai to e-commerce giant Tencent Holdings extended climbs into 2023.

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Big names from liquor maker Kweichow Moutai to e-commerce giant Tencent Holdings extended climbs into 2023. Getty

The percentage of Asia-Pacific-focused hedge funds that made money in 2022 more than doubled in the last two months to nearly a third, according to data from Preqin. And while more than a third of Asian funds were at least 30 per cent in the red in the first 10 months, that figure shrank to just under 7 per cent at year-end.

Brilliance China Core Long Short Fund jumped 22 per cent in the final two months of the year, according to data compiled by Bloomberg, cutting its annual loss to 22 per cent. It lost a similar amount in 2021, when founder Shi Lin apologised to investors for failing to quickly grasp the impact of Beijing’s reform of the after-school tutoring market. Assets of the vehicle tumbled to $US86 million, one-eighth of the February 2021 peak.

Pinpoint’s China Fund trimmed its 2022 loss to about 13 per cent, after a 5.1 per cent November rebound, said Wong.

The recovery has gathered steam this year, with the Golden Dragon index surging 13 per cent. E-commerce giant Alibaba Group has jumped 29 per cent in US trading.

Dantai Capital’s Greater China stock hedge fund had a positive December but still finished the year down 46 per cent, said a person familiar with the matter. In April, it offered to halve management fees for investors after suffering a 27 per cent first-quarter decline.

Some funds missed out on the rally. CloudAlpha Capital Management’s hedge fund had a moderate gain in November but lost money in December to end the year down 37 per cent, said two people with knowledge of the matter. It focuses on hard technology companies in the US and China and has limited exposure to the nation’s consumer-related stocks, which led the initial rally.

The following managers were among the year’s top gainers.

Representatives from the funds mentioned in this article, except Pinpoint, declined to comment or didn’t reply to requests for comment.

Ariose Capital Management, which oversees $US747 million and maintained a bearish tilt toward Chinese stocks for much of the year, held on to most of its earlier gains to finish the year up 49 per cent even after losses in the final two months, according to a newsletter.

Alpine Investment Management’s China stock hedge fund, run by former Goldman Sachs trader Tony Song, saw a 37 per cent return, a person with knowledge of the matter said. About a quarter of the gains before fees came from macro hedges against surprises such as those in the currency, rates and commodity markets, the person added. Having opened in the latter part of 2021, the fund quickly gathered about $US1 billion of assets.

Former Marshall Wace portfolio manager Ramesh Karthigesu’s Kaizen Asia Pacific Master Fund surged at least 26 per cent for the year, said two people with knowledge of the matter.

The China stock hedge fund of Triata Capital returned 50 per cent in November and another 11 per cent in December, swinging back from losses to a nearly 23 per cent gain by year end. The December profits were driven by bullish bets on internet companies and New Oriental Education & Technology Group, one of the stocks earlier hammered during China’s crackdown on after-school tutoring companies. Bearish wagers on electric vehicle, leisure and electrical equipment stocks also paid off, chief investment officer Sean Ho wrote in a newsletter.

The latest distressed asset fund of Alp Ercil’s $US3.5 billion Asia Research & Capital Management returned nearly 23 per cent in 2022, said a person with knowledge of the matter. The fund profited in the first quarter from investments equities of in traditional energy and resources producers that stood to benefit from demand from the global move to lower carbon emissions and a decade of cost-cutting and consolidation. The fund later slashed equity holdings and made gains from bargain hunting long-dated investment-grade debt of similar companies as UK pensions dumped liquid assets in late September to cover losses.

She Peng led Golden Pine Asset Management’s China stock hedge fund to a 20 per cent advance, said two people with knowledge of the number. It was the seventh consecutive positive year since its 2016 inception, one of them added. The fund made money from energy and upstream materials stocks that benefited from an inflationary environment and long-term industry supply constraints. Contrarian investments in consumer discretionary stocks, such as a turnaround for education companies, also proved lucrative.

Nine Masts Capital‘s hedge fund rose almost 15 per cet in 2022, with assets approaching the pre-COVID-19 level of $US1.1 billion, said a person with knowledge of the matter. It made money arbitraging Asian companies’ bonds and shares listed in different markets, with more than half of the returns involving Chinese companies.

Bloomberg

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