Here's How Hedge Funds' Top Picks at 2016 Sohn Hong Kong FaredBy , , , and
Kaisa bond bet would have returned investors 60%, Fuchs says
Cyberdyne down 40% since Fischer laid out bearish case
From beat-up Chinese developer bonds to shares of a Japanese beer maker, hedge funds who gathered at the Sohn Conference in Hong Kong last year made some wide-ranging picks.
Some proved prescient, even as low interest rates, subdued returns and client redemptions conspired to create among the most challenging periods for hedge funds on record. As managers convene on Wednesday for the fifth annual Sohn Conference in Hong Kong, here’s a look at how some of their recommendations fared one year on:
Benjamin Fuchs, founder of BFAM Partners
Investment thesis: Fuchs, whose firm manages more than $2.5 billion, last year described Kaisa Group Holdings Ltd. bonds as "extremely cheap" and said spreads on its offshore debt could tighten by 600 to 700 basis points over the year as the business returned to normal. Kaisa, the first Chinese property developer to default on dollar-denominated debt, was the "poster child for everything that scares Western investors," Fuchs said last year.
One year on: Kaisa’s stock resumed trading in March following a two-year suspension, after the firm restructured its debt and published its annual results for the first time in three years. Investors who bought equal amounts of each of Kaisa’s dollar-denominated tranches of debt on June 1, 2016, would have made about 60 percent, should they have exchanged for only high-yield bonds during the debt restructuring, according to an estimate from Fuchs.
Seth Fischer, chief investment officer of Oasis Management
Invesment thesis: Fischer, whose firm is noted for activist campaigns targeting Japanese stocks, said Cyberdyne Inc., a maker of robot suits for people with spinal difficulties, was overvalued and its market was smaller than people thought. The company’s market capitalization would have to drop 95 percent before Fischer would continue investing, he said. At the time of the conference, Cyberdyne’s shares had jumped more than sixfold since listing in Tokyo in 2014.
One year on: Fischer’s short call preceded other bearish reports on Cyberdyne. The following month, local short researcher Yuki Arai said the company’s share price was too high and in August, Andrew Left of Citron Research unveiled a similar thesis. Cyberdyne denied all allegations and said short sellers were using misleading comparisons for its technology, which it considers unique. The stock has dropped more than 40 percent in the past year.
Aaron Stern, director at Fir Tree Partners
Investment thesis: Stern said at last year’s conference that shares of Japanese beer maker Kirin Holdings Co. Ltd. could rise 90 percent over the next year or two.
One year on: Since June 1, 2016, shares of the Nakano-Ku, Japan-based Kirin have advanced 35 percent, reaching the highest level in nearly three decades. New York-based Fir Tree, which initially bought shares in 2015 after a change of management at the company, still maintains its thesis, Stern said in e-mailed comments.
Wan Yuet-wei, chief investment officer of Wei Capital Management
Investment thesis: Wan recommended a “smart” trade of buying China Oil Services Ltd. while going short on oil and gas explorer Cnooc Ltd. for a 50 percent return, or the “brave” trade of buying COSL only for a 100 percent return.
One year on: COSL’s shares have climbed about 15 percent while Cnooc’s fell 3 percent. The gap was wider than 30 percentage points through March, said Wan, who did both trades in different sizes at various times. The trades would been more profitable had oil prices been stronger, she said. The smart trade, by combining long and short positions, was less dependent on oil prices, while the brave trade took a big risk on oil.
Amit Rajpal, Marshall Wace Asset Management
Investment thesis: Rajpal expected SKS Microfinance Ltd., India’s largest publicly traded micro-lender, to triple its market value to $4 billion in three years. As the "fittest, strongest and most efficient player," its loan growth had trumped the industry average, he said.
One year on: Since renamed Bharat Financial Inclusion Ltd., shares of the micro-lender have risen 11 percent since last June. The stock jumped nearly 42 percent between June 1, 2016 to an Oct. 3 peak, only to lose almost half its value after the Indian government’s November ban on high-value rupee notes. The stock has rebounded since late December. Rajpal declined to comment.
Dan David, partner at GeoInvesting
Investment thesis: David was short shares of Tech Pro Technology, saying the company was funding operations with equity financing and that its stated financials contained "a lot of black smoke."
One year on: While Tech Pro’s stock didn’t move much for a few weeks, a July 2016 report from another short-seller, Glaucus Research, sent shares tumbling by 86 percent. The dramatic plunge alarmed soccer fans in eastern France, where Tech Pro owns the Sochaux-Montbeliard club. GeoInvesting’s David said he no longer holds a short position in the stock.
Garret Mallal, then a fund manager at RWC Partners
Investment thesis: Mallal was bullish about South Korea’s BGF Retail Co. versus GS Retail Co. BGF, which he considers the only pure-play stock in the South Korean convenience store industry, has higher profitability, cash and had a leading position compared with GS, he said last year.
One year on: BGF’s stock price surged 21 percent in the past year, against the 6.2 percent increase of GS’s shares. Mallal, who has since joined Dymon Asia Capital (Singapore), declined to comment.
Masahiko Yamaguchi, York Capital Management partner
Investment thesis: Yamaguchi said Japanese property company NTT Urban Development Corp. was very cheap and could gain at least 40 percent. The surge could be fueled by real estate professionals joining as management, delisting the company or sale of a stake to another real estate developer to form an unlisted venture.
One year on: The stock has remained roughly flat. Sentiment towards Japanese real-estate stocks has been muted in the past year as they tend to trade in tandem with inflation expectations, which haven’t increased.