(Bloomberg) -- Asia hedge funds rebounded in 2024, with many posting double-digit gains as China stocks recovered, Japan’s equity rally hit new heights and some managers reached further afield for profitable trades.
Equity funds managed by Aspex Management (HK) Ltd., Panview Capital Ltd. and CloudAlpha Capital Management Ltd. were among those that returned more than 35% in 2024, often powered by artificial intelligence-related and other technology bets, including those outside the region. Among macro funds that trade across equity, fixed income, currency and commodity markets, funds of Ocean Arete Ltd. were up at least in the high teens.
That marked the first year since 2020 in which Asian hedge funds kept pace with the global average, according to data from Eurekahedge Pte. It ended three years of widespread losses fueled by the Covid pandemic, geopolitical tensions and China’s industry crackdowns.
While still hovering at half of its February 2021 peak, the MSCI China Index rebounded nearly 16% last year on hopes that government stimulus will rejuvenate the ailing economy. Japan’s Topix jumped another 18% in 2024, bolstered by the AI frenzy and corporate governance reforms. India’s Sensex gained 8.2%.
Tech Wagers
With assets topping $9 billion by June, Hermes Li’s Aspex is a giant in the Asian industry. It returned nearly 38% for the year, according to people with knowledge of the matter. Trades in technology, industrial, consumer and financials in various countries contributed, one of them added, declining to be more specific.
Panview’s 41% return marked the best year yet for the firm led by former Goldman Sachs Group Inc. proprietary trader Ryan Thall, according to its latest investor letter. The fund, which began trading in November 2019, is on a six-year winning streak with assets at around $1.5 billion, said a person with knowledge of the matter, who asked not to be identified discussing private information.
While the bulk of Panview’s investments remained in Greater China and Japan at the end of December, the biggest bullish position and a large part of the year’s gain came from AppLovin Corp. The firm has bet on the US digital marketing company expanding market share and broadening its client base, helped by higher returns on advertising spending from its machine-learning model, according to the letter and the person.
Research into Chinese e-commerce companies’ advertising spending led Panview to put on the trade at the start of the year. Shares of AppLovin jumped more than 700% last year. It remains its largest bullish bet, the person said.
RAYS Capital Partners Ltd.’s Asian Technology Absolute Return Fund returned 80%, going off the beaten track to find lesser-known beneficiaries from the AI boom, said Partner Nicholas Chung.
One of its most profitable trades was Credo Technology Group Holding Ltd., the US maker of cables that’s riding high on data center upgrades to raise transmission speed. Taiwan’s Asian Vital Components Co. has been tapping into increasing adoption of liquid cooling solutions for AI servers, Chung added. Lithium battery module maker Advanced Energy Solution Holding Co. surged on data center demand for battery backup. RAYS also counted Nvidia Corp. and ARM Holdings Plc among its top five trades in 2024, he said.
CloudAlpha Tech Fund returned 77%, driven by investments in generative AI infrastructure and application companies, particularly in the US, said a person with knowledge of the matter. Global semiconductor and data center infrastructure bets powered the nearly 56% surge of Singularity Tech Fund, a newer CloudAlpha pool.
Credit Rally
Sentiment in Asia’s high-yield dollar bond market continued to improve last year, rebounding from a slump in 2021 and 2022 when investors were hit hard by a wave of Chinese property developers going into financial distress and defaulting. The roughly $530 million L&R Asia Credit Alpha Fund returned 25% from active trading of credit in various industries across the region, including China, India, Indonesia, Japan, Australia, Mongolia and Hong Kong, the firm confirmed.
Barun Agarwal’s Factorial Fund surged nearly 18%, continuing a winning streak since its inception in 2012, said a person with knowledge of the matter. Among its top trades was a long-time credit investment in India’s Vedanta Resources Ltd. Previously weighed down by investor pessimism, Vedanta’s shares and bonds outperformed last year on an earnings recovery and efforts to reduce leverage.
Share price swings of companies including South Korea’s Posco Holdings Inc., Taiwan’s Hon Hai Precision Industry Co. and China’s Sunny Optical Technology Group made their convertible bonds profitable trades, as did Hong Kong’s flagship carrier Cathay Pacific Airways Ltd.’s convertible bond buyback. Improving sentiment, buybacks and redemptions lifted the credit prices of Chinese companies, such as drugmakers Pharmaron Beijing Co. and Luye Pharma Group Ltd., equipment leasing firm Far East Horizon Ltd. and Postal Savings Bank of China Co., the person said.
Tribeca Asia Credit Fund was another beneficiary of improving credit spreads and rating upgrades as the likes of Vedanta and Japan’s Rakuten Group Inc. regained access to the bond market, said its manager John Stover. Company buybacks and bond redemptions provided event-driven trading opportunities. New bond issuances rebounded with higher coupons, while a shift in negotiation power to bondholders from issuers led to better deal terms.
Stover expects new bond sales in the region to continue to recover. Dollar rates are trending below Asia-Pacific outside Japan and China again, prompting firms to redeem their bonds at higher than market prices and replace them with longer-maturity borrowing in the greenback, instead of local currencies. His investments will be biased toward India and much of Southeast Asia, which Stover said stand to benefit from the second Donald Trump presidency at the expense of China, South Korea and Japan.
US Caution
Will Li’s Arete Macro Fund had its best year in a decade, gaining 17.8% in 2024, according to a person with knowledge of the matter. Key winning trades include bullish bets on Chinese equities in anticipation of government stimulus, and on the US dollar based on the strength of the world’s largest economy.
Still, while the US rally has helped juice returns at hedge funds across Asia, managers are increasingly concerned about the sustainability of “American exceptionalism.”
“We cannot remember a time in our career where global consensus has been so uniform on continued US outperformance,” Panview’s team wrote in the newsletter, citing stock valuations near record highs and sentiment too bullish for its liking. “But we are not brave (or foolish) enough to call a market top.”
Volatility fund manager True Partner Capital Holding Ltd. echoed the sentiment in its year-end newsletter, noting the magnitude of gains in the S&P 500 in the past two years was last seen before the dotcom crash.
“The combination of overpricing, leverage and extremely bullish sentiment can be a toxic one,” it said.
FengHe Fund Management Pte. has been adding Chinese stocks listed at home, in Hong Kong and the US to its $3.9 billion Asia fund, which returned 10% last year. That doesn’t mean it’s exuberant about the world’s second-largest economy.
“In the face of prevailing market pessimism surrounding China, our investment decisions as bottom-up investors are not influenced by broader macroeconomic optimism about the country,” a spokesperson said in an email. “Instead, our stock convictions are based on the certainties we uncovered through rigorous fundamental research and compelling valuation-based risk-reward profiles.”
The funds declined to comment, with the exceptions of FengHe, L&R, RAYS, Tribeca and True Partner.
