Bridgewater Associates is “strongly bullish” on short-term Chinese debt, after its onshore enhanced All Weather fund reaped a 7.4% gain last year amid wild swings in local markets to help it double assets under management.
(Bloomberg) — Bridgewater Associates is “strongly bullish” on short-term Chinese debt, after its onshore enhanced All Weather fund reaped a 7.4% gain last year amid wild swings in local markets to help it double assets under management.
The All Weather Plus No. 2 fund’s performance was mainly driven by a 4.1% excess return relative to cash generated by the quantitative part of the strategy, according to its December investor letter seen by Bloomberg. “Active management” contributed 1.3% as profits in commodities and bonds offset losses in stocks, the document showed.
The company’s onshore hedge fund unit expanded assets to more than 20 billion yuan ($3 billion) after additional fundraising near the year end, people familiar with the matter said, requesting not to be named because the information is private.
Diversification across multiple asset classes helped Bridgewater expand in the local hedge fund industry, which shrank 13% last year to 5.6 trillion yuan in a rare contraction amid steep stock declines and an economic slowdown. While China’s dismantling of its Covid Zero policy will bolster economic activity, the rebound “may not be very strong” as seen in other developed nations, according to the company’s letter.
“Based on such macroeconomic background, we are currently strongly bullish on short-term bonds,” Bridgewater said. Bonds tend to outperform when growth trails expectations, it added.
The company was also a backer of long-term bonds, while being “moderately” optimistic on stocks with attractive valuations, and “moderately” pessimistic on commodities, according to the letter, which cited its views as of Dec. 31.
Bridgewater declined to comment. Reuters reported the doubling of assets earlier.
Balanced Portfolio
While All Weather Plus’s return dropped from a double-digit gain in 2021, it compares with a 22% slump in the benchmark CSI 300 Index and a 3% average loss among multi-asset funds, according to Shenzhen PaiPaiWang Investment & Management Co.
A 7.4% gain before fees would rank Bridgewater No. 4 compared with the 92 hedge funds running at least 10 billion yuan tracked by PaiPaiWang, which averaged a 7.2% loss.
“The macroeconomic environment in 2022 was particularly tough for stocks,” Bridgewater said in the letter. “All Weather, as a balanced portfolio, helped control drawdowns.”
“Performance certainty matters, but to grow AUM also requires a far greater holistic approach,” said Peter Alexander, managing director of Shanghai-based consultancy Z-Ben Advisors Ltd. “In fact, Bridgewater is the rule that counters all exceptions which operate under the misconception that China is a market where foreign firms are unable to effectively compete.”
Bridgewater launched its first China onshore yuan fund in 2018, and upgraded the model in 2019 by adding active management. Its assets exceeded 10 billion yuan in 2021, the first among global firms competing in the so-called private securities fund market, the Chinese equivalent of hedge funds.
Twenty-seven out of the 36 foreign players are running less than 500 million yuan, a threshold deemed necessary to generate enough management fees to fully cover regular costs, according to a PaiPaiWang report in December.
Bridgewater’s China business aims to provide a reliable and differentiated investment approach, a basis for winning local investor trust, Joanna Alpert, fund manager of the unit, told local media in an interview, according to a transcript published on its Wechat account on Dec. 7.
“The past four years have proven that our strategy works in the domestic market, and can help investors ride market turbulences,” she said.
Winton Returns
David Harding’s Winton Group, which was previously the largest global company in the local hedge fund market for years, also bolstered assets last year to about 11 billion yuan, according to the local unit’s December investor letter.
Its onshore strategy recorded a 1.3% gain last year, extending its annualized return since inception in 2010 to 14.2%, according to the document seen by Bloomberg. Winton didn’t immediately reply to a request seeking comment.
(Updates with return breakdown in second paragraph, size of market contraction in fourth)
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