Top-Performing China Hedge Fund Exceeds $1 Billion in Assets

By Klaus Wille

Golden China Fund, the best-performing hedge fund investing in the nation over 10 years, exceeded $1 billion in assets for the first time with bets on financial, real estate and technology stocks.
The fund, managed by Greenwoods Asset Management Ltd. founder George Jiang, had $1.1 billion in assets at the end of August, said Joseph Zeng, Hong Kong (700) office head of the Shanghai-based company. The first time it crossed the $1 billion mark on a month-end basis was in July, he added.
Golden China Fund is bucking the trend among hedge funds investing in Chinese stocks that are heading for the worst performance in three years as a slowing economy is depressing stock-market returns. The fund has returned 14.5 percent net of
fees through the end of August, according to a newsletter published last month. That compares with 2.7 percent for the Eurekahedge Greater China Long-Short Equities Hedge Fund Index.
“What sets the fund apart is that it is reasonably diversified,” said Mohammad Hassan, an analyst at Singapore-based data provider Eurekahedge Pte. “They avoid overexposure to a single sector and it seems they have a number of good names on their books.”
Golden China Fund, which bets on rising and falling shares, has returned an annualized 28.6 percent over the past 10 years through the end of August, according to Eurekahedge. That’s the highest among all hedge funds investing in China with a 10-year track record, the data provider said.

Financial, Property

The fund invests in Hong Kong-listed shares and American depositary receipts of Chinese companies, as well as yuan and foreign currency-denominated shares on China’s exchanges, according to Zeng.
Among the fund’s biggest long positions at the end of August were financial stocks, real estate shares as well as stocks of technology, media and telecommunication companies, according to the newsletter.
“Valuations of financial and real-estate stocks are low at the moment as the market has been rather pessimistic on those sectors for a while,” said Zeng. “However, we have a contrarian view on these sectors and are long some stocks which we regard as highly undervalued.”
Hong Kong’s benchmark Hang Seng Index (HSI) is little changed since the beginning of the year after climbing about 26 percent in 2012 and 2013 combined. Financial stocks in the CSI 300 Index (SHSZ300) are currently trading at 5.9 times their 12-month forecast earnings, a 33 percent discount to the five-year average multiple of 8.8, according to data compiled by Bloomberg.

Ctrip, Tencent

Golden China has also invested in Ctrip.com International Ltd. (CTRP), China’s biggest travel website, and Internet company Tencent Holdings Ltd., Zeng said.
It has short positions in building materials stocks because of slowing demand and declining prices, he said. It is also shorting stocks of manufacturers and machinery as labor costs are rising and demand is slowing down, he said. Shorting involves selling borrowed shares with the view their prices will drop and they can be bought back at a profit.
Golden China Fund, which charges a management fee of 1.5 percent and a performance fee of 20 percent, has both long and short positions in consumer stocks, according to the newsletter.
Greenwoods Asset Management managed $3.6 billion as of end of August, Zeng said. Its second-biggest fund is the Greenwoods China Alpha fund, which had $489 million at the end of August.
The firm expects China’s economy to grow between 7 percent and 7.5 percent this year.
The world’s second-largest economy will probably expand 7.3 percent this year, according to a Bloomberg survey of economists from Sept. 18 to Sept. 23. That would be the slowest pace since 1990.
“We are cautiously optimistic on China’s economy,” Zeng sai