Two bloody months for China-oriented investments won't ruin the year for hedge fund managers that focused on investing in the world's second-largest economy, but some suffered painful wounds.
Hedge fund managers — even those not focused on China, but with exposure to the country — were not immune to the combined effects of the precipitous decline in the Shanghai Stock Exchange in July, the abrupt devaluation of the renminbi and a cut in interest rates by Chinese authorities in August.
The turmoil roiled global markets and rocked the HFRX Global Hedge Fund index, produced by Hedge Fund Research Inc. The broad index was down 2.2% in August and down 1% year-to-date through Aug. 31.
China-focused hedge funds declined 9.9% in July but were up 8.5% year-to-date through July 31, data from eVestment LLC showed.
“Despite the decline, (China-focused hedge fund) returns for the year are still among the industry's best and the universe is producing average performance well above China equity benchmarks,” said researchers for the Marietta, Ga.-based data provider in their July performance report.
The Standard & Poor's China BMI index was down 11.9% in July and up 1.8% year-to-date through July 31.
Hedge fund index returns are not yet available for August, but based on the returns of the first few China-focused hedge funds to report monthly results, the range is between -2% and -7%, estimated Yu Mei Kemmy Koh, managing director and an Asian long/short equity sector specialist based in the Singapore office of hedge funds-of-funds manager Pacific Alternative Asset Management Co. LLC.