Hedge Funds to Investors: We're Putting More Money at Risk, Tooby
Staff at Greenwoods, Doric among those adding cash to funds
Asia hedge funds were mired in worst returns streak since 2008
Asian hedge-fund managers are putting more money into their funds, seeking to project confidence after the industry’s worst performance streak since the 2008 financial crisis spurred redemptions.
Founders and employees of Asian firms including Greenwoods Asset Management, Doric Capital, LBN Advisers, SPQ Asia Capital and Zeal Asset Management are among those who put more personal wealth into their own hedge funds since a China equities rout started in June.
While it’s common for hedge-fund employees to invest in their own offerings, putting their money at risk has taken on additional significance after a period of historic turbulence shook confidence. Investors pulled almost $2 billion from Asia-focused hedge funds in the quarter ended September and may be poised to withdraw more, according to data provider EVestment.
“In general, this is a positive signal when hedge-fund managers top up personal investments in their funds during market turmoil,” said William Ma, Hong Kong-based chief investment officer until Oct. 31 of Gottex Penjing Asset Management (HK), which allocates money to hedge funds. “While I don’t think the top-up would change investors’ redemption decision, it is certainly a useful signal for new investors as well as existing investors who are closely monitoring the managers due to recent market volatility.”
China’s benchmark Shanghai Composite Index has plunged almost 35 percent since a June peak and the MSCI Asia ex-Japan Index has shed more than 18 percent since an April high as China’s economy cooled and investors there unwound leveraged bets. Asia-focused funds lost a cumulative 6.8 percent from June through September on average, in the longest losing streak since November 2008, according to Singapore-based data provider Eurekahedge Pte. By the end of August, 32 percent of China-focused funds had posted cumulative losses since the start of the year, according to Eurekahedge data.
Plowing performance fees back into funds is a common practice that many hedge-fund managers do at their own discretion on an annual basis. Employees usually contribute 3 percent to 8 percent of assets of U.S. hedge funds managing less than $1 billion of assets, according to Daniel Celeghin, Asia head of Casey Quirk & Associates LLC, a Darien, Connecticut-based adviser to asset managers.
Several of the Asia-focused firms where employees invested their own money in past months posted gains in October.
At Greenwoods, which oversees $7 billion of assets in hedge and long-only funds, Shanghai-based Chief Investment Officer George Jiang added money to a fund in July and August, said Hong Kong-based partner Joseph Zeng. Greenwoods’ flagship $1.7 billion Golden China Fund had monthly losses in excess of 8 percent in both July and August. It was little changed in September and generated an estimated 13 percent gross return last month through Oct. 27, Zeng said.
“I have a strong belief in the stabilization of the Chinese equity market,” Jiang said in an e-mail. “I saw the valuation of China equities as very attractive due to the over-pessimism about China by most investors.”
The MSCI China Index, which tracks Hong Kong-listed Chinese companies, trades at around 10 times this year’s estimated earnings, falling from a 10-year average of 12.5 times. The gauge has risen 6.8 percent since the end of August.
Doric’s team plowed additional capital, including bonuses paid out of performance fees and savings, into its $193 million Asia-Pacific stock hedge fund that invests in smaller companies in September and October, said investor relations manager Shawn Campbell. Doric employees represent about 19 percent of fund assets, he said. The Doric fund was down 0.9 percent in September and advanced 1.4 percent last month through Oct. 23, according to Campbell.
At LBN Advisers, which oversees about $600 million in hedge and long-only funds, staff added money into its two hedge funds since June, said a person familiar with the firm. The cash injections, which weren’t used to fund redemption requests, brought employee stakes to 8 percent of the firm’s assets, the person said. LBN China+ Opportunity Fund declined 12 percent in the first nine months, according to an investor update.
Partners and employees in early August and October added money to the $225 million Greater China-focused SPQ Asia Opportunities Fund, said people with knowledge of the matter. With the latest injection, SPQ staff’s share of firm assets has been restored to 20 percent, after investor inflows diluted it earlier, according to the people.
SPQ’s fund was up 13.6 percent in the first nine months of the year, according to a newsletter to investors. The fund lost 5 percent in July and almost 2 percent in August, before rebounding in September. It gained 5.1 percent last month through Oct. 16, according to an estimate sent to investors.
Managers at Zeal, which oversees $520 million in several China-focused funds, have also been investing their own capital in the funds, said Hong Kong-based CEO Franco Ngan. Zeal China Fund had three consecutive months of losses between June and August. It bounced back with a 4.4 percent return last month through Oct. 23, according to Ngan.
The investments by Zeal staff weren’t triggered by redemptions, but were made because of "value and conviction," Ngan said without elaborating.