Hedge Funds See No Respite Ahead in Asia After Brutal StartSuzy Waite
Orchid, Truston, Open Door see more market volatility ahead
Staying above water is cause for celebration at one hedge fund
Hedge funds in Asia, which struggled with a brutal market selloff last month, don’t see a respite anytime soon.
The $241 million Orchid China Master Fund extended January’s 11.2 percent decline to slump another 2.6 percent this month through Feb. 15 and is bracing for more market swings, according to a letter to investors. The $33 million Truston Falcon Asia Fund has reduced unhedged positions amid extreme volatility and an uncertain outlook, it said in an investor letter. Open Door Capital Group, which suffered a 23 percent loss in its $188 million A-share fund last month, said in a letter that China’s slower growth “cannot provide any positive support for the capital market."
"Sentiment remains weak due to the shock of the sell-off within such a short timeframe," according to the letter from Orchid China Master Fund, which is managed by Edmond Wong. "Markets will likely remain volatile."
Hedge funds in Asia, which were able to steer through choppy markets last year to post gains, are having a more challenging time this year as the outlook for China’s economic growth has dimmed and oil prices remain mired in a slump. Hedge funds investing in Asia on average declined 3.8 percent in January, according to data from Eurekahedge Pte.
For the rare funds that have managed to limit the damage, staying above water in this market justifies celebrating with a "bottle of champagne," said John Foo, founder of Kingsmead Asset Management. Kingsmead’s hedge fund fell 28 basis points in January and is up 50 basis points so far this month, Foo said. A basis point is one-hundredth of a percentage point.
Foo said he planned on keeping exposure "low over the next few months amid heightened volatility."
Funds that eked out a gain last month include the Athos Asia Event Driven Fund, a $146 million fund overseen by Chief Investment Officer Matthew Moskey and Fred Schulte-Hillen, which rose 0.08 percent in January, according to an investor letter, and the $125 million Factorial Master Fund, managed by former DKR Oasis Management Co.’s Barun Agarwal, which rose 0.42 percent last month, according to a person familiar with the matter. Athos declined to comment, as did Factorial.
For most of the industry, though, the selling frenzy has led to losses. Quam Asset Management Ltd., Greenwoods Asset Management Ltd. and Springs Capital were among hedge funds with double-digit losses last month. Funds managed by Wykeham Capital, F&H Fund Management Pte. and Asuka Asset Management also fell into the red in January.
A long-only China-focused fund managed by Red Gate Asset Management fell an estimated 25 percent in January, according to an investor letter from the firm. Ching Shao and Tony Yam co-founded the firm in 2003.
The Orchid fund wrote in its letter that the fund reduced its exposure, or the difference between long and short investments, at the beginning of January and added back as the market fell and valuations declined. Orchid Asia Group Management has $2.9 billion firm-wide and manages hedge funds and private equity funds.
Truston Falcon Asia Fund, which uses a long-short Asian equities strategy, fell 2.5 percent last month, although has regained some losses and is up approximately 2 percent so far in February, according to Heejung Chang, the fund’s portfolio manager. Chang manages the fund at Truston Asset Management Singapore, a division of Korea-based Truston Asset Management Co., which had $7.3 billion in assets as of October.
“Given the uncertain macro outlook, high market volatility, and weakening investors’ confidence, we further reduced our unhedged positions, especially in China,” the Truston fund wrote in its letter.
Open Door Capital Group, a Shanghai-based firm founded in 2011 by Chris Ruffle and Ke Shifeng, said in its letter to investors that the decline in China’s CSI Index was “an embarrassing opening for the new year.” China’s gross domestic product in 2015, the lowest in 25 years, and international trade numbers "cannot provide any positive support for the capital market."
Representatives at Orchid, Athos, Factorial and Red Gate declined to comment, while Open Door did not respond to requests for comment.