Hedge fund Anatole’s ‘Stagflation Nation’ gets a smoother ride

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Hedge fund Anatole’s ‘Stagflation Nation’ gets a smoother ride

In April after the firm scaled back its bullish bets on stocks, the flagship hedge fund of Bloomberg Anatole Investment Management Ltd. stabilised.

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The fund, which was hurt by bargain hunting for Chinese shares since late last year, dropped less than half a percentage point in April, according to people familiar with the matter who asked not to be named discussing private information. The fund has lost 22% of its value this year, the people said. One person said that it had $1.9 billion in revenue as of March.

The smoother ride last month came after Anatole slashed the fund's gross exposure - the combined value of long and short wagers -- to less than 110% of fund assets, Chief Investment Officer George Yang wrote in a commentary sent to investors in April. It also cut net exposure - the difference between the two types of bets to near zero. Both are indications of a more defensive stance.

Anatole's struggles highlight the dangers of seizing opportunities to buy Chinese equities during the selloff. Many investors have remained on the sideline, unable to tell when sentiment may turn a corner amid a raft of regulatory, political and inflation concerns.

Anatole started to bottom-fish the nation's stocks in late 2021, believing that a few buckets of Chinese assets were cheap enough and that China had begun to start a loosening cycle and should outperform, Yang wrote in the commentary seen by Bloomberg. The result turned out to be disastrous: we were wrong. The government crackdowns have enveloped industries as wide as e-commerce, ride-hailing and after-school tutoring. The risk of Chinese companies being delisted from US exchanges has hurt sentiment. The February 2021 peak of the Nasdaq Golden Dragon China Index fell another 28% this year.

Anatole s fund lost 10% in December, paring its annual gain to 4%, according to the people. Yang said that it was the worst quarterly loss since its inception in 2016.

Anatole underestimated and underappreciated the power of this phase change, he wrote, referring to the end of the Wild West like growth of Chinese private companies fueled by state funding and venture capital money.

The firm will look at more US companies instead, rather than China investments, according to a commentary sent out around Easter weekend.

The Hong Kong-based Chief Operating Officer Gary Lee told Bloomberg, while declining to comment on the numbers, Anatole's largest gross exposure remains in Greater China, and it is a net bullish on the region. It has always invested in both Chinese companies and those in the rest of Asia, US and Europe, using its home-market research and industry expertise to identify opportunities elsewhere.

According to Bloomberg data, the firm exited 12 US-listed holdings in the first quarter. Chinese group-buying company Pinduoduo Inc. and data center operator GDS Holdings, as well as Dutch-US data search firm Elastic NV and US analytics company Amplitude Inc. are some of the companies that are currently being bought by Chinese group-buying company Pinduoduo Inc. and data center operator GDS Holdings. The filings gave a snapshot of its bullish investments in US securities at the end of March, without shedding light on bearish bets, its holdings of stocks listed elsewhere, or trading during or after the quarter.

Lee said we are long-term structurally positive on China, but he didn't give any more details. Chinese and related companies are an important part of our opportunity set. None Compensation is an Even Bigger Headache in the Remote-Work Era.

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