The level of leverage in the revamped Banxia Stable is closer to what legendary investor George Soros outlined in his autobiography, Li said. If the shift sounds bold and simple, making the right moves during last year’s turbulence to achieve a 63% gain in the underlying strategy required sharp judgment.

In January 2020, Li was among the earliest to turn short on stocks and commodities, taking note of not only emerging reports on the new coronavirus but also signs of a weakening economy. “Super-cheap” put options allowed her to add leverage that helped bring a 61% jump in the leveraged Banxia Stable in the first quarter as markets tumbled, she said.

Among Best
Li’s use of options to construct contrarian macro trades means “her return profile is negatively correlated” to global and local peers, said Ma, who has followed her performance since she worked at Honghu. “She is really one of the best macro hedge fund managers I have ever met,” he said.

Along with almost 9,000 local players, Li is competing with more than 30 global firms that are making inroads into China’s 4.5 trillion yuan hedge fund market. Dalio has said he saw the need to invest “a significant portion” of his portfolio in Chinese assets, and Bridgewater raised 900 million yuan in its second China private fund in September, doubling assets.

Bridgewater’s All Weather China strategy has posted annualized returns of 22% through July since its 2018 inception. That’s less than Banxia Stable’s 85% in the same period, Li said, while noting the strategies aren’t directly comparable.

In a reminder of risks macro hedge funds face when they bet in the wrong direction, Bridgewater’s flagship Pure Alpha II fell 12.6% last year.

More than other strategies, the performance of macro funds “depends a lot on the manager’s own judgment,” said Li Minghong, head of fund-of-funds investments at Panyao Capital in Shanghai.

Banxia Stable fell 13% in the first three months of this year, in part because of an increase in steel prices. Its short positions in ferrous metals were hurt by China’s unexpected move to lower crude steel output and cut capacity, according to its quarterly investor letter. The fund broke even on bonds, and made a small profit on stocks even as the Shanghai Shenzhen CSI 300 Index declined 3%.

Li and her peers face a challenge attracting investors in a nation where macro funds account for just 2% of the 65,129 local private securities funds tracked by Shenzhen PaiPaiWang. She said she’s now meeting more potential customers following last year’s performance, but fund raising remains tough, in part because of Banxia’s short track record. She hasn’t felt any impact from the collapse of U.S. family office Archegos Capital Management, saying her leverage is much lower and portfolio more diversified.

The difficulties aren’t shaking her confidence in outperforming the likes of Bridgewater. “They should just hire people like me,” she said. “But I won’t work for them.”

With assistance from Bei Hu.

The article was provided by Bloomberg News.

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