Mounting risks prompts CCP-focused hedge funds to lower their exposure

According to media reports on Sep 6th, some large CCP-focused Asian hedge funds were purchasing more non-CCP stocks. A portfolio manager said crackdown on technology companies by the CCP, a real estate debt crisis, Sino-US audit tensions and extreme zero-Covid policies all lowered sentiment and made it difficult to see the growth opportunity of Communist China companies.

 Hedge funds are active market participants using leverage and derivatives to generate yields. Traditionally, China-focused funds invested a large portion of portfolios in American Depository Receipts (ADR) of Mainland China companies. Some publicly available filings show HHLR Advisers, an investment management firm under private equity firm Hillhouse Capital Group, had three non-CCP enterprises in its top five US-listed holdings in the second quarter compared with just one a year earlier.

 Aspex Management, which was headquartered in Hong Kong and backed by Hillhouse Founder Zhang Lei, managed over $7 billion funds, and focused on pan-Asian equities. Aspex also changed shareholding structure given four of its top five buy-ins among US-listed companies in the second quarter were non-CCP firms.

 Tairen Capital was a hedge fund headquartered in Hong Kong and made investments worldwide with a focus on Communist China. Four of its top five buy-ins in the second quarter were non-China stocks, while eight of its top ten US-listed holdings were non-China names either. A specialist said the trend of increasing investment on non-China stocks appeared unlikely to be short-term operations to hedge Communist China risks.