They were two investing whales, well known to each other but invisible in the market except for the price moves in their wakes — sometimes as they snapped up the same stocks.
One of their names became famous this year: Bill Hwang, whose Archegos Capital Management spectacularly collapsed amid revelations that it had borrowed enough to wield more than $100 billion in market clout.
The other, Tao Li, remains little known outside a circle of select investors who’ve long revered him as Mr. China for his expertise in that nation’s stocks. But the 41-year-old New York-based hedge fund manager is starting to attract harsher scrutiny.
As it turns out, Hwang and Li had both piled into the same Chinese online-education company, GSX Techedu Inc., amassing stakes that market participants estimate amounted to a total of about 40% of the shares. When Archegos’s portfolio racked up margin calls in March, banks rushed to liquidate its bets, sending GSX tumbling. Li’s Teng Yue Partners hedge fund, which manages $10 billion including leverage, took a hit and by the end of August was down about 32% for the year, according to people with knowledge of its performance.
How exactly Hwang and Li came to pile so heavily into the same stock is of intense interest to a handful of short sellers including Carson Block, famous for his bearish bets against Chinese companies. Short interest in GSX’s American depositary receipts reached about 33% in mid-2020. Such positions soured as the price more than doubled in January.
Critics are wondering whether the pair should have disclosed the massive stakes they were building. Some are questioning whether the overlapping bets might have somehow run afoul of securities laws.
Hwang and Li were, after all, longtime former colleagues and, at least before Archegos’s collapse, chatted periodically about investing ideas, according to people with knowledge of their relationship.
“I really, really hope the SEC looks at the trading in GSX,” Block said in a May interview with accounting firm Marcum BP, which posts articles on areas in which it specializes, such as audits of Chinese companies.
Block, who had announced last year he was shorting GSX, questioned whether Archegos and others were trying to squeeze such positions. “Just can’t see that these guys went long GSX on such large size because they believed the fundamentals were so good,” he said.
Representatives for Hwang and Teng Yue declined to comment. Block declined to elaborate on his public comments when contacted by Bloomberg.