China’s Growing Position In The Hedge Fund World

Hedge funds recorded another positive month in July following a strong first-half performance according to data from Eurekahedge. Hedge fund managers gained 0.69% in July, bringing their year-to-date return to 6.56%, according to the hedge fund data provider’s analysis.

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But while the industry registered a positive performance overall for the year to the end of July, hedge funds are still not beating the market. The MSCI ACWI (Local) was up 0.83% in July and 15.33% as of July 2019 year-to-date. Moreover, only the minority (27%) of hedge funds in the Eurekahedge database were able to maintain double-digit returns over the first seven months of 2019.

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North American hedge funds utilizing a long/short equity strategy registered the best performance for the year to July. These managers were up 10.4% on average for the period. Meanwhile, The Eurekahedge Greater China Long Short Equities Hedge Fund Index declined 0.62% in July, weighed by the weak performance of the region’s underlying equity market. Despite this performance, thanks to a strong first quarter, China-focused funds were up 8.4% on average for the year to the end of July.

A booming hedge fund industry

The value of assets managed by hedge funds in China has ballooned over the past few years as investors, and managers have rushed to try and take advantage of the region’s prosperity.

According to data compiled by Bloomberg, China now has more than 9,000 hedge fund managers, many of which are self-taught.

With many funds lacking a long track record to sell to investors, the only way to stay out is with returns; sky-high returns.

Nearly 60 hedge funds are reporting gains of 100% or more this year, according to Bloomberg’s research, as managers take high-risk, high-reward bets to help them stand out.

But while some managers are thriving, many more are suffering. 300 private funds have had their registrations canceled so far this year by China’s Asset Management Association of China. Reasons given for cancellations include funds becoming “out of touch” with investors and the market, as well as illegal fundraising activity, market manipulation and ignoring reporting requirements.

Still, despite some bad actors, the fund management industry in China seems to be thriving, and it is attracting plenty of outside capital. The world’s largest hedge fund, Bridgwater launched an onshore fund investing in Chinese securities last year. David Einhorn’s Greenlight Masters Fund has also been deploying capital into China over the past year.

Towards the end of 2018, Greenlight invested with TX Capital, which “focuses on deep value opportunities in the Greater China market.” The firm also committed capital to Anatole Investment Management in December 2018. Founded by George Yang in 2016, the fund aims to capitalize on inefficiencies identified by China-related primary research. Short-selling is a core competency of the firm.

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