Hedge fund winners and losers turn extreme in wild Asian markets

One of the wildest runs for Asian markets in recent memory helped drive the gap between the region’s hedge fund winners and losers to new extremes.

While Franchise Capital Management Ltd., Sylebra Capital Ltd. and Brilliance Asset Management Ltd. nursed losses exceeding 20% from China’s regulatory clampdown, global growth-stock corrections and short squeezes, others including Aspex Management (HK) Ltd. and Asia Research & Capital Management Ltd. scored gains of about 30%.

“I don’t think I’ve seen such high dispersion in Asia equity long-short hedge funds really as long as the market effectively existed,” said Richard Johnston, Asia head of Albourne Partners, which advises clients on alternative investments. Factors swaying performance included how funds positioned themselves on Chinese education stocks and Internet companies, and how much exposure they had to better-performing markets like yuan-denominated shares, Japan and India, he added, declining to comment on individual funds. 

Chinese regulatory tightening ensnared industries ranging from e-commerce and after-school tutoring to ride-hailing, sending two gauges of Hong Kong-listed stocks to the biggest declines among 92 major stock indexes tracked by Bloomberg globally. The sell-off of growth stocks and financial woes among Chinese high-yield bond issuers also inflicted pain on funds. Meanwhile, funds that pursued multiple strategies and made well-timed wagers on the global energy transition were among the winners.

The Eurekahedge Asian Hedge Fund Index advanced 5.7%, trailing global peers by 3.6 percentage points after outperforming in seven of the past 10 years. Below is a selection of returns from some of the region’s notable funds:

Tech Turmoil
 

Franchise Fund slumped 39% last year, according to a newsletter sent to investors. The hedge fund soared 203% before fees in 2020 on concentrated bullish bets on growth stocks. Last year, it suffered as companies including short-video platform Kuaishou Technology and cloud-based commerce services provider China Youzan Ltd. saw business deteriorate. Investor greed turned to extreme fear on overvalued growth stocks amid global inflation and Chinese regulatory tightening concerns, founder Simon Wang wrote in the commentary.

Sylebra Capital’s older global hedge fund dropped 35% in 2021, according to a person with knowledge of the matter. The stock picker was hurt by its bias toward technology, mid-cap stocks, deep fundamental research and a large book of bearish wagers, the person said. Investors shifted to cyclical and mega-cap stocks, markets were driven by macroeconomic headlines, and retail traders derailed hedge fund short-selling, the person added. 

The loss almost wiped out the fund’s 48% gain in 2020. It represented a setback for the firm that raised about $900 million from investors in 2021 looking to profit from a wider performance gaps of stocks.

A December gain helped the Greater China-focused Brilliant Partners Fund narrow its full-year loss to 23.6%, according to three people with knowledge of the matter. Brilliance Asset Management founder Shi Lin apologized to investors in July for misjudging the impact of Beijing’s reforms of the after-school tutoring sector.

The Benjamin Fuchs-led multi-strategy BFAM Asia Opportunities Fund saw its nine-year winning streak come to an end, with an almost 11% loss in 2021. It suffered as investors dumped bonds of highly leveraged Chinese real estate companies, people with knowledge of the matter said. Former prolific issuers China Evergrande Group and Kaisa Group Holdings Ltd. roiled the markets for months before defaulting on debt obligations.

CloudAlpha Master Fund ended a volatile year down 24%, after losing 25% in December, according to an update sent to investors. Kintor Pharmaceutical Ltd., one of its core positions, dived 78% in Hong Kong that month, after announcing its Covid-19 drug failed to meet certain “statistical criteria” in the phase III trial for efficacy and safety. The hedge fund is Kintor’s largest outside shareholder. CloudAlpha, which can invest in technology companies globally, soared 137% in 2020 and took a positive spin on last year’s results.

“Looking back, we made a lot of right decisions in 2021,” the firm wrote in an email to investors sent by Crystal Lu, its chief communications officer. The most meaningful change was the shift from software and Internet stocks to companies with real technology edges in the U.S. and China mid-last year, seizing on China’s push toward technology self-sufficiency. “The biggest lesson learned was sizing on the binary biotech names,” it said. 

It’s not all doom and gloom. Och-Ziff Capital Management alumnus Hermes Li’s Aspex surged at least 31% for the year, said two people with knowledge of the matter. Aspex’s assets have mushroomed to about $8 billion, the people said.

The roughly $500 million Infini Master Fund surged 96% last year. China’s regulatory tightening and U.S. rules affecting Chinese companies listing there created lucrative opportunities to short the nation’s education, real estate and Internet firms, founder Tony Chin said. It also gave a chance to exploit pricing gaps between mainland China, Hong Kong and U.S. markets, he added.

Energy Transition 
 

The latest global distressed asset fund of Alp Ercil’s Hong Kong-based ARCM gained 28% in 2021, said a person with knowledge of the matter. Paying off was the timely rotation out of 2020’s winning credit positions, in favor of distressed equities related to cyclical industries and commodities, according to the person. The move was intended to capture investment opportunities in areas such as base metals, energy and industrial stocks amid the global transition toward cleaner energy, the person added.

Grace Lu’s GH China Century Master Fund was up 17% for the year, according to a newsletter. It thrived on environment-friendly investments such as rare earths and battery makers that supply to the electric vehicle industry, as well as solar power companies and inverter manufacturers, Lu said. 

Tribeca Global Natural Resources Fund jumped 58%, said Ben Cleary, its Asia chief executive officer. The returns were largely driven by investments in carbon credits and other beneficiaries of global decarbonization policies such as battery feedstocks, cell makers and clean energy such as uranium, he said. 

Diversification Wins
 

Managers that focus elsewhere in Asia did well. Seth Fischer led his Oasis Management Co. hedge fund to a nearly 16% surge, said people with knowledge of its performance. The firm benefited from strong results in Japan, where it has made a name for pushing for corporate governance improvements. Starting the year without owning Chinese credit also helped, said one of the people.

Asia funds that employ multiple investment strategies and those that maintained more balanced bullish and bearish wagers and tight risk limits weathered the 2021 turbulence well. Arjun Menon’s roughly $800 million AM Squared Ltd. hedge fund returned 18%, according to a newsletter seen by Bloomberg News. Simon Sadler’s $6.2 billion Segantii Asia-Pacific Equity Multi-Strategy Fund rose 9.8%, an investor update showed. Polymer Capital Management’s hedge fund gained nearly 11%, said two people with knowledge of the matter. The Hong Kong-based firm is led by Angus Wai, who modeled it after his former employer, Steve Cohen’s Point72 Asset Management. 

Macro Winners
 

While some global macro hedge funds stumbled amid unexpected rate market moves, two such managers in Asia finished the year on a high note. Quantedge’s $3.1 billion quantitative fund rose nearly 20%, according to a newsletter to investors and CEO Suhaimi Zainul-Abidin.

The macro hedge fund of Will Li’s $2.5 billion Ocean Arete Ltd. finished 2021 up 8.4%, the 10th straight year in the black, according to a newsletter. It made money with timely investments that captured the moves in equity index futures and rates markets, said a person familiar with the fund.

Female Touches
 

In a male-dominated industry, two other women-led hedge funds ended the year with notable gains. Yao Wanyi steered her $650 million Apeiron Capital hedge fund to a nearly 9% return, after trades on global health-care companies with China drivers paid off. L&R Capital Ltd.’s credit hedge fund rose 8%, people familiar with the fund said. The turmoil in China’s real estate industry led to a broader Asia bond sell-off and created short-term opportunities for the active trader led by Li Ran, one of the people said.  

AM Squared, Apeiron, ARCM, Aspex, BFAM, CloudAlpha, Dantai, Factorial, L&R, Oasis, Ocean Arete, Polymer, Segantii and Sylebra declined to comment. Representatives for Brilliance, Franchise and True Partner didn’t immediately reply to requests for comment.