US hedge funds far outperformed local rivals in China in 2023

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Assets managed by the Chinese operations of Bridgewater and Two Sigma surged as the US hedge funds outperformed their local peers during the market turbulence of last year.

Bridgewater China Investment Management, the local arm of the world’s largest hedge fund, quadrupled its assets under management to more than Rmb40bn ($5.6bn) at the end of last year from two years ago, while Two Sigma China almost doubled its assets over the same period, according to people close to the companies.

The influx of local investors came as the global hedge funds reported double-digit returns in one of the world’s worst-performing markets while local asset managers struggled to make ends meet.

Bridgewater’s flagship All Weather Strategy China Private Investment Fund, which targets wealthy individuals with a minimum investment of Rmb5mn ($700,000), yielded 10.2 per cent last year, according to a distributor of the fund. People close to Two Sigma said the quantitative trading giant’s three China funds reported a more than 16 per cent return over the same period.

In contrast, the benchmark CSI 300 index fell 11.7 per cent in 2023 as China’s post-pandemic economic recovery struggled to gain traction following an unprecedented real estate meltdown.

While many Chinese investment firms sought to emulate Bridgewater’s success by tapping alternative asset classes such as commodities and derivatives, they had limited success. Public records show China’s 771 locally owned multi-strategy hedge funds generated an average return of 2.8 per cent last year.

The outperformance of the likes of Bridgewater and Two Sigma in the Chinese market highlights the potential for global asset managers to profit from the world’s second-largest economy despite its lukewarm growth outlook and geopolitical tensions between Beijing and western capitals.

“Global hedge funds know how to…