True Arrow's China Hedge Fund Averted Tumble During August Rout

  • China fund run by ex-SAC managers gained 4.6% in August
  • Last month's gain brought year-to-date return to 41.3%

True Arrow Capital Management’s China funds, which have rewarded investors with more than 60 percent in annual returns, bucked August’s equities rout and turmoil across commodities and currencies markets.

The firm’s China strategy rose 4.6 percent in August, and bringing gains in the first eight months of the year to 41.3 percent, according to an investor letter obtained by Bloomberg News. That would place it among the top performers among Greater China-focused hedge funds, which as a group returned 3.2 percent in the first eight months of 2015, according to data from Eurekahedge Pte, with more than 75 percent of funds yet to report August numbers to the research firm.

True Arrow sidestepped a stock market rout that failed to reverse even after unprecedented efforts by the Chinese government to prop up the market. The firm joins other Asia-focused hedge funds that have gained after cutting risky positions and paring back exposure to China stocks, including those run by Pine River Capital Management, Segantii Capital Management and Tairen Capital.

“Even though our alpha factors are performing well in this volatile environment, we reduced risk levels and leverage until the regulatory and trading environments stabilize further," True Arrow said in the letter dated Sept. 3, which did not give any details on what specific trades helped performance. Alpha refers to outperformance over a benchmark.

A spokesman for San Jose, California-based True Arrow declined to comment on fund returns.

True Arrow was founded by Sam Hou, former managing director of quantitative strategies at the former hedge fund firm run by Steve Cohen, SAC Capital Management, and Lou Constable, who oversaw operations and technology for SAC’s quantitative group. True Arrow’s Chinese strategy opened in August 2013, and has posted annualized gains of 65.1 percent since its inception, according to the letter.

Market Volatility

Volatility in oil and concerns over a China slowdown have roiled markets worldwide, hitting a number of prominent hedge fund investors including David Einhorn and Bill Ackman.

The Shanghai Composite Index fell 12.5 percent in August and slid 14 percent in July, the biggest two-month tumble since 2008.  Since its peak in mid-June, the benchmark has plunged 39 percent, erasing all of this year’s gains. So far this year, it is down nearly 2 percent, while the CSI 300 Index is down 5.7 percent.

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