Springs, Greenwoods China Hedge Funds Hit by China Stock Rout

(Bloomberg) -- The bloodbath in Chinese stocks since the start of the year has taken a toll on some hedge funds investing in the nation’s equities.

Springs China Opportunities Fund dropped 9.8 percent in the first five trading days this year ended Jan. 8, according to an unaudited weekly performance update sent to investors, as the world’s second-largest stock market got off to its worst start in more than two decades. Greenwoods Golden China Fund declined 4.6 percent in the same period, according to an e-mail to investors. Both manage money raised from international investors.

China’s benchmark Shanghai Composite Index has dropped almost 15 percent this year, the worst-performing primary stock gauge tracked by Bloomberg. Weaker-than-estimated yuan fixings heightened worries about the country’s economic slowdown and a short-lived stock-market circuit breaker exacerbated selling pressure. Regulators, who introduced share-sale restrictions during last summer’s stock rout, replaced them with new curbs to stem the decline.

Springs Capital and Greenwoods are among the biggest China- focused hedge fund managers. Springs Capital, which targets under-researched, out-of-favor companies that it expects will outperform in one to three years, manages about $5.5 billion out of offices in Beijing, Shenzhen, Hong Kong and Singapore. Jenny Tian, a Hong Kong-based managing partner, didn’t immediately respond to an e-mail seeking comment.

International Investors

Springs China Opportunities Fund returned 4.9 percent in December, bringing its gain to 29 percent last year, according to a separate investor update.

Greenwoods Golden China Fund, which managed about $2 billion in assets by the end of December, gained 22 percent in 2015, according to Joseph Zeng, a partner of the Shanghai-based manager of about $7 billion of assets. Zeng is traveling for meetings and was not immediately available for comment on the January number.

Springs Capital’s China Opportunities Fund is one of the few hedge funds that raise money from international investors and invest the majority of their assets in yuan-denominated, class-A shares listed in Shanghai and Shenzhen. Most China- focused hedge funds based in Hong Kong and Singapore devote the majority of assets to Hong Kong- and U.S.-traded Chinese stocks, partly due to restrictions on offshore funds to access yuan shares.

Declining Markets

This year through Jan. 8, 975 of the 1,122 stocks on the Shanghai Composite Index declined this year, according to data compiled by Bloomberg. The MSCI China Index, which tracks Chinese companies listed outside of the country, retreated 8.1 percent during the same period.

Hedge funds investing in mainland shares have few options to counter declining markets because of regulatory restrictions on betting against stocks and a limited availability of stocks that they can borrow to execute short sales. Shorting involves selling borrowed securities and buying them back at lower prices.

Springs China Opportunities Fund returned more than 17 percent on an annualized basis since its September 2007 inception through the end of November, beating the 5.4 percent gain of the Eurekahedge Greater China Long-Short Equities Hedge Fund Index, according to data compiled by Bloomberg.

Greenwoods Golden China Fund made almost 28 percent on an annualized basis between its 2004 inception and the end of November, twice the gain of the Eurekahedge gauge in the same period.

This year’s slump has also claimed victims among funds based in China as many domestic private funds have agreements with investors spelling out mandatory liquidation requirements when their holdings drop below a certain value. Shanghai Heqi Tongyi Asset Management dumped all its holdings in a fund, Chief Investment Officer Chen Gang told Bloomberg in an interview last week. Xinhong Investment, manager of a Chinese hedge fund that surged 86 percent during last year’s rout, planned to sell all its stock holdings last week, Chairman Lu Weidong told Bloomberg News on Jan. 8.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net Andreea Papuc