Shanghai hedge fund manager Li Bei says she learned quickly that the low-volatility approach to investing behind the rise of Bridgewater Associates was doomed in China for a startup like hers.
Steady returns did little to draw investors used to short-term rewards, so she put in her own money, cranked up leverage and produced an industry-leading 258% gain last year.
Li is a pioneer in macro hedge fund management in China, where homegrown firms are taking on foreign giants that are struggling to adapt in an industry where even low-fee mutual funds generate sizable returns. While her Shanghai Banxia Investment Management Center only manages about 500 million yuan ($76 million), she says firms like hers are best placed to assess how China is driving the global economy.
“We truly feel that Chinese funds have an obvious advantage judging corporate profits and commodity prices,” Li, 37, said in a phone interview from Shanghai. “For us, these are good times to make money.”
Chinese macro hedge funds made an average 41% return in 2020, four times the global level, according to data from Shenzhen PaiPaiWang Investment & Management Co. and Eurekahedge. The more than triple gain of Li’s Banxia Stable Fund put her firm at the top of rankings for such funds in China.
The stellar year promises to save Li from wounds inflicted by an exodus of investors in 2019 when her 9% return—still beating an 8.9% global average of peers, according to Eurekahedge—was dwarfed by local mutual funds during a bull market. The setback forced her to rethink her initial strategy of emulating Ray Dalio’s Bridgewater, an approach that she says included diversifying to limit volatility and providing free research to attract institutional clients.
‘Doesn’t Work’
“The Bridgewater route doesn’t work in China,” Li said. Offering two complimentary research reports a month didn’t help bring new money, and big institutions also balked at her fund’s small size.
When clients were pulling cash from Banxia Stable, Li put in some of her own, and added leverage of between 250% and 300%. The product, managing less than 200 million yuan, replicates asset allocations in her larger Banxia Macro Fund but increases exposure through margin-financed trades in instruments such as stock index and commodities futures.
Last year’s success didn’t come easily for Li. After managing money at Bocom Schroder Fund Management early in her career, she won multiple industry awards for her 25% annualized returns running China’s first macro hedge fund at Honghu Investment Management Co. Yet losses in 2016 caused differences with her then-husband Liang Wentao, the firm’s founder. After they parted ways, the mother of two set up Banxia at the end of 2017 and started building client relations from scratch.
“She is a very unique China macro manager with the ability to do focused and very deep macro research in specific areas, such as steel,” said William Ma, who was until recently chief investment officer of wealth manager Noah Holdings, which invested in Banxia in January 2018.