Former Lehman Trader’s $4BN Hedge Fund Books First Loss In A Decade On China Carnage

Former Lehman Trader’s $4BN Hedge Fund Books First Loss In A Decade On China Carnage

For the first time in its nearly decade-long history, BFAM Partners, a hedge fund firm with more than $4 billion under management, is on track to report its first annual loss largely thanks to the implosion of Evergrande.

According to Bloomberg, the BFAM Asian Opportunities Fund has lost more than 10% in the first 11 months of the year, dropping about 7.5% in October and another 3.3% in November.

Katarina Royds, who leads investor relations at BFAM, declined to comment. However, Bloomberg’s inside sources revealed that the Asian Opportunities Fund suffered from selling pressure in Chinese real estate bonds. The firm was founded by former Lehman Brothers trader Benjamin Fuchs, but its credit strategies, including high-grade, high-yield, credit default swaps and special situations, are led by Eugene Fung.

Of course, one might expect a former Lehmanite to be somewhat more sensitive to ructions in overleveraged property markets.

The Hong Kong-based hedge fund firm had $4.9 billion AUM as of August, according to a fund document obtained by BBG.

The exact details of BFAM’s Chinese credit holdings aren’t known, but a gauge of junk bonds issued by Chinese property developers plunged 21% in October and another 4.9% in November. BFAM has faced similar setbacks in the past. The firm’s Asian high yield-focused credit investments helped the firm chalk up a 17% loss during the month of March 2020 at the onset of the pandemic. However, the firm largely held on to its assets, and a price rebound later in the year helped it to an 8.5% annual gain.

Of course, it’s not just Chinese credit that has blown up in investors’ faces this year. As US stocks trade near all-time highs, Chinese ADRs continue to struggle. Firms like Didi (the Chinese answer to Uber that was rug-pulled by the CCP just days after its US IPO) and Alibaba (which has seen its shares continue to struggle) are well off their highs, and MSCI’s Golden Dragon Index has been off by double-digits since the fall. 

Meanwhile, as we have reported, Evergrande and Kaisa Group, two of the most prolific Chinese real estate dollar debt issuers, roiled markets for months before defaulting on debt obligations late last week, as Fitch declared Evergrande to be in “restricted” default. Fears of financial contagion sent the yield investors demand for holding Chinese junk bonds to a record high on Nov. 9, 3x its five-year average, according to a Bloomberg index.

That hedge funds would want to invest in Chinese real-estate developers is hardly a surprise: as we have reported, the Chinese property market is probably one of the largest asset classes in the world.

Meanwhile, Chinese junk bonds are now yielding 22% as the country’s debt crisis escalates.

According to Bloomberg, the declines in the last couple of months underscore how even the region’s savviest traders have faced challenges navigating the unceasing torrent of regulatory headlines out of China. While the firm has seen some monthly losses, the BFAM fund’s previous winning streak, in calender years, since June 2012 was rare in a region where individual hedge fund performances could be choppy.

Tyler Durden
Mon, 12/13/2021 – 22:00

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