What China giveth, China taketh away.
After riding a market boom to return almost six times the global industry average in the first five months of this year, Greater China-focused hedge funds crashed to earth with the stock rout in July, their worst month since September 2011. Funds run by Pine River Capital Management, EJF Capital LLC, Top Ace Asset Management, Zeal Asset Management and Springs Capital (Hong Kong) were among those that lost money.
“Sizable losses were widespread in July among China-focused managers because of the sharp correction in the mid- and small-caps in Hong Kong, in which some stocks were down 30 percent to 40 percent in a day,” said Max Gottschalk, Asia chief executive officer of Gottex Fund Management Holdings.
Among the larger funds focusing on the region, the roughly $1.2 billion Pine River China Fund lost 6.3 percent in July, according to an investor update. The Pine River fund, helmed by Dan Li, lost money for a second straight month and had its largest peak-to-trough net asset value decline since inception between May 15 and July 15, according to the update.
The Pine River China Fund, started in September 2013, remains up 6.9 percent this year. The hedge fund made 30 percent for investors in 2014.
Many hedge funds suffered double-digit losses. EJF Capital, the U.S.-based hedge-fund firm founded by Emanuel Friedman, lost an estimated 27 percent last month in its China strategy fund, according to an e-mail sent to investors.
Legends China Fund, with about $90 million of assets, declined about 23 percent, according to people familiar with the matter, who asked not to be identified because the returns are private. The hedge fund, whose return this year was cut to 15 percent, was hurt when the China stock rout spread to Hong Kong-listed small and medium-sized companies that it focuses on, according to the people.
Top Ace’s Scienart Advantage Fund, a Greater China long-short stock fund started in January 2013, dropped an estimated 20 percent during the month, said two people with knowledge of the matter. The July setback pared the fund’s return this year to 16 percent, one of the people said. Chief Investment Officer Wang Yawei was a star manager at China Asset Management, one of the nation’s largest mutual fund companies.
The $265 million Zeal China Fund retreated 12 percent in July, according to a performance update, bringing its return this year to 5.3 percent.
“The market correction was across the board,” said Franco Ngan, chief executive officer of Hong Kong-based Zeal Asset Management, which picks stocks listed in China and Hong Kong. “We are holding on to high-conviction ideas with strong fundamentals, good earning visibility, likely to bring upside surprise in the upcoming result season and trading at attractive valuations.”
The about $500 million Springs China Opportunities fund bounced back from a mid-month loss of as much as 15 percent to finish the month 5 percent down, said Jenny Tian, a managing partner at the firm. The fund was up 29 percent in the first seven months.
Springs China Opportunities fund recovered a lot of the lost ground in July by reducing Chinese insurance stocks and banks, and using the profits to add to A shares of health-care, high-end manufacturing, chemicals and new materials companies during the selloff, Tian said. The fund profited as the stocks rebounded on government intervention.
With 69 percent of the funds it tracks yet to report numbers, the Eurekahedge Greater China Hedge Fund Index retreated 8.5 percent in July. China-focused managers, especially those betting on rising and falling stocks, dominated the lowest-quartile hedge-fund group in the region by performances last month, Credit Suisse Group AG wrote in an early August note to clients.