Asia’s Hedge Funds Just Had Their Worst Year Since 2008

As investor updates for the final month of 2018 trickle in, there’s one overriding message: December capped a year most hedge-fund managers in Asia — and their clients — would rather forget.

From ill-timed bets on Chinese tech stocks to simultaneous collapses across asset classes that typically don’t move in tandem, firms that have rarely had a losing year turned in dismal report cards.

Asia-focused hedge funds declined an average 1.8 percent last month, Eurekahedge data show, extending 2018’s slide to 8.7 percent, the worst performance since 2008 and a result that made other regions’ declines look tame. Markets were rattled by weakening corporate earnings, the pace of U.S. rate hikes, slower global growth and rising trade tensions. Less than one-third of firms made money.

Hardest Hit

Hedge funds in Asia trailed their global peers in 2018

One of the biggest losers was Quantedge Capital Pte, whose global fund plunged 29 percent in 2018, including a 6.3 percent loss in December. That’s a particularly bad result considering the fund up until last year had generated an average annualized return of 20 percent since its inception in October 2006.

“In the last 30 years, there have only been two years where all four asset classes were down simultaneously,” once in 2015 and again in 2018, Quantedge’s client update said. “Portfolio losses were inevitable as diversification and dynamic allocation among these asset classes are of limited value under such circumstances.”

Unlike 2015, several of Quantedge’s usually uncorrelated strategies underperformed in unison. Value stocks trailed growth stocks, thwarting the firm’s equity market-neutral investments, while a multitude of natural disasters led to losses in insurance-linked securities.

A representative for Quantedge declined to comment.

Roughing It

December wrapped up a tumultuous year for hedge funds in Asia

Quantedge did have company, however. Here are some of the other Asian funds that lost money in 2018, according to people with direct knowledge of their operations. Representatives for the funds either declined to comment or didn’t immediately respond to requests for comment.

  • Trades gone sour for Graticule’s Asia Macro Fund in December included those linked to U.S. interest rates, U.S. and Japanese stocks, the Australian dollar and the yuan.
  • Greenwoods Asset Management Co.’s $1.8 billion Golden China Fund had its second-worst annual loss in the fund’s almost 15-year history. The 23 percent decline is also much worse than peers — a Eurekahedge index tracking China-focused stock hedge funds slid 15 percent in 2018.
  • Orchid China Master Fund’s healthcare-stock holdings were hit in December on concerns of lower generic drug prices. Chinese internet stocks traded in the U.S. were also dented as the NASDAQ Composite Index slid 9.5 percent, its worst monthly performance since November 2008.
  • A rebound of 9 percent in December wasn’t enough for PruLev Global Macro Fund. Investments in fixed income paid off, but not sufficiently to recover from a 16 percent plunge in October.

Extraordinary’ Month Heaps Further Pain on Hedge Funds

Outliers

Some Asian hedge funds managed to beat the odd

Amid the carnage there were some bright spots. Representatives for the funds below either declined to comment or didn’t immediately respond to requests for comment. Information is according to people with direct knowledge of the funds’ operations.

  • Snow Lake Capital Ltd.’s Asia fund returned 13 percent in December, extending gains since it began trading in April to 34 percent. Its $1.3 billion China Master Fund capped a nine-year winning streak. Bullish and bearish bets on telecoms, media and tech shares, as well as financial stocks, were the main profitable trades in December for group’s $70 million Snow Lake Asia Master Fund.
  • The $266 million True Partner Fund was helped by a 21 percent gain during February’s stock rout.
  • Counterpoint Asian Macro Fund, meanwhile, gained from a call option on Hong Kong-listed Chinese companies early in December before cutting bullish bets on Asian stocks and adding bearish wagers on U.S. equities.