Global investors "return with guns blazing"! Chinese hedge funds regain favor with capital

According to the latest survey from BNP Paribas Bank in Paris, some global investors are turning their attention back to Chinese hedge funds after withdrawing funds in the past two years. The survey found that a net 7% of respondents plan to increase their allocation to Chinese multi-strategy funds by 2025. Although this percentage may seem low, it is an improvement from 2024 when 17% of respondents continued to reduce such investments. In 2023, the situation was even worse, with as many as 42% of respondents choosing to withdraw funds from Chinese hedge funds. The survey was conducted in December of last year and January of this year, covering 229 global hedge fund investment institutions (managing a total of $1.4 trillion in assets). Recently, the Chinese government has implemented a series of economic stimulus measures to boost the capital market, leading to a more than 20% increase in the MSCI China Index since August of last year. Despite the possibility of Trump returning to the White House exacerbating trade conflicts, weakening economic vitality, and disrupting the capital markets, global investors are still actively looking for investment opportunities. Nick Silver, head of brokerage for the Asia Pacific region at the French bank, said in a phone interview on Wednesday, "Investors believe that market sentiment has become overly pessimistic, and market positions have been thoroughly cleaned up, making new investments in China more attractive and convincing. The performance in 2024 also supports further increasing allocations." Data from Eurekahedge Pte shows that the index measuring the performance of hedge funds in Greater China surged by 8.6% last year, not far from the global average led by the United States. The second-half rally, especially the strong performance in September, consolidated the index's first annual gain since 2021. Although there has been a recent rebound, the MSCI China Index is still only about half of its peak value in February 2021, with a long way to go to recoup losses from domestic industry reorganization, geopolitical tension, and restrictions imposed during the pandemic. The index's valuation is around 12 times the expected earnings, much lower than the S&P 500 index's approximately 26 times. It is worth noting that more than half of the respondents are from the Americas. Since the 2008 financial crisis, North American institutions (such as pensions, endowments, and foundations) have been the primary driver of new capital in the global hedge fund industry. However, a deeper analysis reveals that these investors are still avoiding or reducing allocations to hedge funds focused on Chinese stock long/short strategies. On the other hand, investment advisors may be leading funds back to China. According to Silver's data, a net 14% of investment advisors expect to increase their allocation to Chinese long/short equity hedge funds. Similarly, 9% of single-family or multi-family offices and 8% of fund of funds (allocating funds to hedge funds) also plan to do so. Investment advisors can provide fund allocation advice for a wide range of investors, from endowments to pensions to family offices. Hedge funds focusing on the broader Asia-Pacific region have been one of the most sought-after investment targets for the second consecutive year. The survey shows that a net 26% of investors plan to increase their allocation to funds in the region this year, surpassing the 24% willingness to allocate to North American hedge funds. This investment enthusiasm partly carries over from last year when 28% of investors indicated they would increase allocations. However, ultimately in 2024, only 2% of investors actually increased their investment in funds in the region. Silver said, "Some of the best-performing funds continue to raise money even in relatively challenging environments." He refused to disclose specific company names, saying, "We hope this signals that a new dawn for Asian fund managers is on the horizon." Japan ranks as the third most popular investment destination, with 20% of respondents planning to increase their allocation to Japanese hedge funds by 2025. This percentage is even higher than the 22% of investors who increased investments in Japanese hedge funds last year, second only to the North American region.