Wuhan hedge funds show traders in virus lockdown can still make money

As some of the world’s biggest hedge fund stars watch returns evaporate, managers in Hubei, the original epicenter of the coronavirus, are weathering the storm.

Even though the central Chinese province has been under lockdown since late January, funds based there managed a 1.9% return on average in February, data compiled by consultancy Shenzhen PaiPaiWang Investment & Management Co. show.

That’s almost on par with the average 2% for hedge funds nationwide in China and significantly better than the 3.2% slide in the benchmark Shanghai Stock Exchange Composite Index that month.

Some of Hubei’s top performers chalked up returns above 30%, and almost 80% posted gains for the month.

Every money manager in Hubei was trapped at home for the period, trading from their personal computers, with some video-taping transactions with their mobile phones for compliance reasons. Market moves were analyzed and dissected on WeChat.

“The internet connection was certainly slower but the impact on trading itself wasn’t that significant,” said Wan Jie, the chief investment officer of Wuhan-based Fenghong Asset Management, a hedge fund with about 30 million yuan ($4.2 million) under management.

Fenghong’s Ziteng No.1, a low-frequency fund that trades commodities futures, gained 31% in February after its algorithm-based model captured price trends from pure terephthalic acid (a compond used to make polyester) to iron ore and rebar.

WeChat Meetings

That made Fenghong Asset the top performer among 146 Hubei-run strategies tracked by PaiPaiWang. The province is home to about 100 hedge fund firms, with 87 based in the capital city of Wuhan.

Although Chinese stocks were down overall last month, February was a volatile period. A rally in 5G telecom firms and new-energy automobile stocks helped Shangyang Asset Management, which manages around 30 million yuan. Two of its products rose as much as 41% through Feb. 25, according to Chief Risk Officer Hong Yin.

Hong said the team, which meets daily on WeChat, decided to pocket gains over the next few days and switch into other stocks. As a result, the funds ended the month up 28% and 16% respectively, she said, making them the second- and third-best performers in Hubei.

Still, while the lockdown helped limit panic selling, as well as the spread of the virus, it has hindered hedge fund firms’ plans for new product launches. Most are small and don’t have established partnerships with large distributors.

Before the outbreak, Fenghong Asset hired a team from Shanghai for a new quant stock product but that’s been put on hold because the staff can’t come to Wuhan for due diligence and to hammer out cooperation details. “We should be launching that fund right now,” Wan said.

Red Tape

Wuhan Youwin Capital, meanwhile, planned four new products for the first quarter, which the firm hoped would double assets under management from about 50 million yuan currently.

It only managed to launch one product before the outbreak started. A second is caught in red tape after Youwin Capital couldn’t open a trading account over the counter in person at its local brokerage outlet as required, even though all other registration procedures were complete, according to Chief Investment Officer Li Jin.

Investors who have pledged money to the new products can only wait, anxiously watching the market moving up and down as brokerages remain closed, Li said.

As stocks rallied, clients were “nagging us like everyday” to start trading, Li said. “Now they’ve stopped, after having avoided the recent declines in an unexpected way.”

Hubei’s campaign against the virus is making steady progress. After a few days of no new infections, residents are gradually being allowed to walk around inside their neighborhoods. That gives Li hope.

“Maybe in one or two weeks” the securities brokerages will re-open for business, he said. “We’re finally seeing a light at the end of the tunnel.”

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.