Bloomberg
Chinese Hedge Fund jumps 258% after the collapse of Ray Dalio’s strategy
(Bloomberg) – Li Bei, the hedge fund manager from Shanghai, said she quickly learned that the approach to low volatility to invest behind the rise of Bridgewater Associates was doomed in China for a start like hers. term rewards, so she put in her own money, increased leverage and achieved a leading 258% increase last year. Li is a pioneer in the management of macro-hedge funds in China, where home businesses take on foreign giants struggling to adapt in an industry where even low-cost investment funds are making significant returns. While her Shanghai Banxia Investment Management Center manages only about 500 million yuan ($ 76 million), she says enterprises like her can best be positioned to determine how China drives the world economy. ‘We really feel that Chinese funds have an obvious advantage when judging corporate profits. and commodity prices, ”Li, 37, said in a telephone interview with Shanghai. “For us, these are good times to make money.” Chinese macro-hedge funds achieved an average return of 41% in 2020, four times the global level, according to data from Shenzhen PaiPaiWang Investment & Management Co. and Eurekahedge. Li’s Banxia Stable Fund’s more than triple profit has put its business at the top of the charts for such funds in China. The star year promises to save Li from wounds inflicted by an exodus of investors in 2019 when her 9% return – still beating a global average of 8.9% of peers, according to Eurekahedge – was dwarfed by local mutual funds during a bull market. The setback forced her to rethink her original strategy to follow Ray Dalio’s Bridgewater, an approach she said included diversification to limit volatility and provide free research to attract institutional clients. ‘Does not work’ ‘The Bridgewater route does not work in China. “Li said. Presenting two complimentary research reports a month did not help bring in new money, nor did large institutions have much of the fund. When customers took cash from Banxia Stable, Li invested some of her own funds and added a leverage of between 250% and 300%. The product, which manages less than 200 million yuan, repeats the allocation of assets in its larger Banxia macro fund, but increases exposure through margin-financed transactions in instruments such as stock indexes and commodity futures. Li’s success did not come easily last year. After managing money at Bocom Schroder Fund Management early in her career, she has won several industry awards for her 25% annual returns in China’s first macro hedge fund at Honghu Investment Management Co. Yet losses in 2016 caused differences with her then-husband Liang Wentao, the firm’s founder. After parting ways, the mother of two set up Banxia at the end of 2017 and started building customer relationships all over again. as steel, ”said William Ma, who until recently was chief investment officer of wealth manager Noah Holdings, which invested in Banxia in January 2018. The level of leverage in the refurbished Banxia stable is closer to what legendary investor George Soros set out to do in his autobiography. , Li said. If the shift sounds bold and simple, the sharp judgment is needed to achieve a 63% increase in the underlying strategy during last year’s turmoil. In January 2020, Li was one of the earliest to cut stocks and commodities short. not only emerging reports of the new coronavirus, but also signs of a weakening economy. ‘Super-cheap’ put options enabled her to add leverage which helped bring a 61% increase in the leveraged Banxia stable in the first quarter as markets tumbled. Under BestLi’s use of options to set up controversial macro transactions, ‘her return profile is negatively correlated’ with global and local counterparts, says Ma, who has followed her performance since working for Honghu. “She really is one of the best macro hedge fund managers I have ever met,” Li said. Along with nearly 9,000 local players, Li competes with more than thirty global companies starting in China’s current market of 4.5 trillion yuan. Dalio said he sees the need to invest a “significant portion” of his portfolio in Chinese assets, and Bridgewater raised 900 million yuan in its second private fund in China in September, doubling the assets. Bridgewater’s All Weather China strategy yielded an annual return of 22. to July since its inception in 2018. That is less than 85% of Banxia Stable in the same period, Li said, although he noted that the strategies are not directly comparable. In remembrance of the risks that macro-hedge funds face if they bet in the wrong direction, Bridgewater’s flagship Pure Alpha II fell 12.6%. More than other strategies, the performance of macro funds ‘depends a lot on the judgment of the manager,’ said Li Minghong, head of investments at Panyao Capital in Shanghai. Rocky QuarterBanxia Stable fell 13% in the first three months of this year, partly due to a rise in steel prices. Its short positions in ferrous metals were hampered, according to the quarterly investor letter, by China’s unexpected move to reduce crude steel production and reduce capacity. The fund leveled bonds and made a small profit on equities, even though the Shanghai CSI 300 index in Shanghai fell by 3%. Banxia was not alone. According to PaiPaiWang, more than 40% of Chinese hedge funds made a loss in the first quarter, although macro funds made an average profit of 1%. Li and her peers face a challenge in attracting investors in a country where macro funds make up just 2%. of the 65,129 local private security funds tracked by PaiPaiWang. She said she now meets more potential customers after last year’s performance, but fundraising remains difficult, in part due to Banxia’s short history. She had no influence on the collapse of the US family office Archegos Capital Management and said that her leverage was much lower and that the portfolio was more diversified. The problems do not make her trust to perform better than Bridgewater. “They just have to hire people like me,” she said. “But I will not work for them.” (Updates on the first quarter’s performance of Chinese hedge funds in the fourth to last paragraph) Visit us at bloomberg.com for more articles like this. 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