(Bloomberg) — Shanghai hedge fund supervisor Li Bei says she discovered shortly that the low-volatility method to investing behind the rise of Bridgewater Associates was doomed in China for a startup like hers.
Steady returns did little to attract buyers used to short-term rewards, so she put in her personal cash, cranked up leverage and produced an industry-leading 258% acquire final yr.
Li is a pioneer in macro hedge fund administration in China, the place homegrown companies are taking over overseas giants which can be struggling to adapt in an {industry} the place even low-fee mutual funds generate sizable returns. While her Shanghai Banxia Investment Management Center solely manages about 500 million yuan ($76 million), she says companies like hers are finest positioned to evaluate how China is driving the worldwide economic system.
“We truly feel that Chinese funds have an obvious advantage judging corporate profits and commodity prices,” Li, 37, mentioned in a cellphone interview from Shanghai. “For us, these are good times to make money.”
Chinese macro hedge funds made a mean 41% return in 2020, 4 instances the worldwide degree, in line with information from Shenzhen PaiPaiWang Investment & Management Co. and Eurekahedge. The greater than triple acquire of Li’s Banxia Stable Fund put her agency on the high of rankings for such funds in China.
The stellar yr guarantees to save lots of Li from wounds inflicted by an exodus of buyers in 2019 when her 9% return — nonetheless beating an 8.9% international common of friends, in line with Eurekahedge — was dwarfed by native mutual funds throughout a bull market. The setback compelled her to rethink her preliminary technique of emulating Ray Dalio’s Bridgewater, an method that she says included diversifying to restrict volatility and offering free analysis to draw institutional purchasers.
‘Doesn’t Work’
“The Bridgewater route doesn’t work in China,” Li mentioned. Offering two complimentary analysis stories a month didn’t assist convey new cash, and massive establishments additionally balked at her fund’s small dimension.
When purchasers have been pulling money from Banxia Stable, Li put in a few of her personal, and added leverage of between 250% and 300%. The product, managing lower than 200 million yuan, replicates asset allocations in her bigger Banxia Macro Fund however will increase publicity by means of margin-financed trades in devices resembling inventory index and commodities futures.
Last yr’s success didn’t come simply for Li. After managing cash at Bocom Schroder Fund Management early in her profession, she received a number of {industry} awards for her 25% annualized returns working China’s first macro hedge fund at Honghu Investment Management Co. Yet losses in 2016 triggered variations along with her then-husband Liang Wentao, the agency’s founder. After they parted methods, the mom of two arrange Banxia on the finish of 2017 and began constructing shopper relations from scratch.
“She is a very unique China macro manager with the ability to do focused and very deep macro research in specific areas, such as steel,” mentioned William Ma, who was till not too long ago chief funding officer of wealth supervisor Noah Holdings, which invested in Banxia in January 2018.
The degree of leverage within the revamped Banxia Stable is nearer to what legendary investor George Soros outlined in his autobiography, Li mentioned. If the shift sounds daring and easy, making the best strikes throughout final yr’s turbulence to realize a 63% acquire within the underlying technique required sharp judgment.
In January 2020, Li was among the many earliest to show quick on shares and commodities, being attentive to not solely rising stories on the brand new coronavirus but in addition indicators of a weakening economic system. “Super-cheap” put choices allowed her so as to add leverage that helped convey a 61% leap within the leveraged Banxia Stable within the first quarter as markets tumbled, she mentioned.
Among Best
Li’s use of choices to assemble contrarian macro trades means “her return profile is negatively correlated” to international and native friends, mentioned Ma, who has adopted her efficiency since she labored at Honghu. “She is really one of the best macro hedge fund managers I have ever met,” he mentioned.
Along with virtually 9,000 native gamers, Li is competing with greater than 30 international companies which can be making inroads into China’s 4.5 trillion yuan hedge fund market. Dalio has mentioned he noticed the necessity to make investments “a significant portion” of his portfolio in Chinese property, and Bridgewater raised 900 million yuan in its second China non-public fund in September, doubling property.
Bridgewater’s All Weather China technique has posted annualized returns of 22% by means of July since its 2018 inception. That’s lower than Banxia Stable’s 85% in the identical interval, Li mentioned, whereas noting the methods aren’t straight comparable.
In a reminder of dangers macro hedge funds face after they guess within the improper path, Bridgewater’s flagship Pure Alpha II fell 12.6% final yr.
More than different methods, the efficiency of macro funds “depends a lot on the manager’s own judgment,” mentioned Li Minghong, head of fund-of-funds investments at Panyao Capital in Shanghai.
Rocky Quarter
Banxia Stable fell 13% within the first three months of this yr, partially due to a rise in metal costs. Its quick positions in ferrous metals have been damage by China’s surprising transfer to decrease crude metal output and minimize capability, in line with its quarterly investor letter. The fund broke even on bonds, and made a small revenue on shares even because the Shanghai Shenzhen CSI 300 Index declined 3%.
Banxia wasn’t alone. More than 40% of Chinese hedge funds made a loss within the first quarter, though macro funds managed a mean 1% acquire, in line with PaiPaiWang.
Li and her friends face a problem attracting buyers in a nation the place macro funds account for simply 2% of the 65,129 native non-public securities funds tracked by PaiPaiWang. She mentioned she’s now assembly extra potential prospects following final yr’s efficiency, however fund elevating stays robust, partially due to Banxia’s quick monitor document. She hasn’t felt any influence from the collapse of U.S. household workplace Archegos Capital Management, saying her leverage is way decrease and portfolio extra diversified.
The difficulties aren’t shaking her confidence in outperforming the likes of Bridgewater.
“They should just hire people like me,” she mentioned. “But I won’t work for them.”
(Updates with first-quarter efficiency of Chinese hedge funds within the fourth-to-last paragraph)
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