Springs Capital Hedge Fund Dropped 9.8% by Jan. 8 on China Rout

  • Springs China Opportunities focused on yuan-denominated shares
  • Fund returned 29% last year and more than 17% since inception

A Springs Capital hedge fund pooling international capital for investment in Chinese companies dropped 9.8 percent in the first five trading days this year as the world’s second-largest stock market got off to its worst start in more than two decades.

Springs China Opportunities Fund’s unaudited loss through Jan. 8 was communicated to investors in a weekly performance update. The fund returned 4.9 percent in December, bringing its gain to 29 percent last year, according to a separate investor update.

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, 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.

Yuan Shares

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.

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.

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.

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