Hedge Fund’s Wealthy Clients Want to Add Money After July Loss

Howel Thomas’s Hong Kong hedge fund focused on small Asian stocks is getting pummeled in July and his wealthy investors want to add money.

“They have a long-term perspective,” Thomas, a former CLSA Asia-Pacific Markets banker, said in a telephone interview on Wednesday as China’s benchmark stock index tumbled to a three-month low. “They know that when things are cheap, it’s a good time to buy. Things have gotten very cheap in the last few days.”

Thomas said that his wealthy individual and family office clients indicated in conversations this week that they wanted to deposit more money in the Wykeham Capital Asia Value Fund even as it lost 16.3 percent so far this month.

Wykeham has made a one-time arrangement to accept additional capital on July 15, according to a letter to investors Wednesday. It usually allows subscriptions and redemptions only at the end of the month, said Thomas.

The hedge fund, which had about $24 million of assets at the beginning of July, is focused on Hong Kong-listed stocks with a market value of less than $500 million, he said.

The MSCI Hong Kong Small Cap Index dropped 7.4 percent on Wednesday, the most since October 2008, and was down 21 percent this month to yesterday. The benchmark Shanghai Composite Index has tumbled 31 percent from a June 12 high as Chinese government support measures failed to allay concern that margin trades will keep unwinding at a record pace.

‘Nasty Effect’

“The turmoil from the Greek referendum and the collapse of stock markets in China is having a nasty effect on the valuations of most Hong Kong listed small-cap companies,” Thomas wrote in the letter to investors.

July’s share price declines cut the estimated price-earnings multiple of the MSCI small-cap gauge to 7.5 times, compared to a five-year average of 13 times, according to data compiled by Bloomberg.

Thomas, who was an equity-derivatives banker during his stint at CLSA, began trading with his own money in April 2009, and started a $1 million fund in October 2010.

The fund has gained 16.5 percent this year after the July loss eroded a 39 percent return in the first six months, he said in the letter. By June, the fund and its predecessor account had returned an annualized 26 percent.

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