Two US Hedge Funds Racked Up Major Chinese Gains Last Year

American firms in China have seen better days, except for the Chinese operations of hedge fund giants Two Sigma and Bridgewater.

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American firms in China have seen better days – except maybe these two. 

Last year, the Chinese operations of both Two Sigma and Bridgewater — two large US-based operations — posted massive gains, according to a Financial Times report over the weekend, besting even locals in an anemic economy.

Against the Grain

Bridgewater and Two Sigma had every excuse for poor performance in China last year. A collapse in the real estate market has dragged down the local economy writ large, and measures taken by the government in Beijing to stoke a rally among publicly traded companies barely made a dent. To put a sour cap on the year, Moody’s downgraded the country’s credit rating in December from stable to negative, citing the heavy debt loads carried by local governments. In total, the country’s benchmark CSI 300 index fell nearly 12% in its last long slog through the old Gregorian (as a reminder, the S&P 500 leaped about 24% in 2023, while Europe’s STOXX 600 index increased nearly 13%).

But by piling heavily into commodities, bonds, and other alternative investment vehicles — a strategy Bridgepoint especially rode — the two US firms were able to feast in an otherwise sleepy bear market:

  • Bridgewater’s flagship China fund yielded a return of over 10% last year, sources told the FT, while Two Sigma’s three major Chinese quant trading funds garnered a return of over 16%. According to public records, the 771 locally owned multi-strategy hedge funds in China saw an average return of just under 3%.
  • Sources also told the FT that Two Sigma’s China arm roughly doubled its assets under management last year, while Bridgewater’s saw an astounding four-fold increase in assets under management.

“Most Chinese funds only know how to make money in a bull market,” Shenzhen Rongzhi Investment Consultant VP Zhang Zhongyu told the FT.

Bucking the Trend: To be sure, the two hedge funds proved the exception to the rule, not just vs. local Chinese competition, but against other Western firms looking to get a footing in China as well. “Certain funds that have a lot of money and are fairly aggressive can go in and try to make some money within the China market on a small scale,” Andrew Collier, an analyst at GlobalSource Partners, an adviser on Chinese investments, told the FT. “That doesn’t mean other [US] funds with a more established approach could follow suit.” Blackrock’s China unit, for instance, suffered losses across all of its eight stock-focused funds in 2023.