Some large Asian multi-strategy funds suffered their biggest drawdown this year in July as a brutal selloff in AI stocks across Japan, South Korea and China eroded gains accumulated in the first half, sources close to the funds said on Wednesday.
Positions that had powered gains during the first half became a source of pain in July, as concerns over AI spending and the Middle East conflict sparked heavy selling in semiconductor stocks, hammering Asian chip giants.
The multi-strategy funds fared better than the broader industry, with Goldman Sachs estimating Asia's predominating stock-picking hedge funds fell 15.2% in July, the steepest monthly drop on record.
Still, a monthly loss exceeding 5% is significant for these so-called multi-strategy platform funds, investors said, as they hire multiple managers adopting various strategies from equities, fixed income, macro to commodities, aiming to ensure low correlation to market direction and smooth volatility.
DIVERGENCE LIKELY TO PERSIST
The divergence in hedge fund performance is likely to persist, with AI-driven disruption and a high interest-rate environment rewarding some managers while challenging others, market participants said.
Among individual funds, Hong Kong-based Polymer Capital Management, for instance, the best-performing Asia multi-strategy fund in the first half and which oversees more than $6 billion, lost 6.9% in July, trimming its year-to-date gains to 11.5%, according to a source familiar with the performance.
The pullback was partly due to its equity positions in Japan, another source said.
Korea's benchmark Kospi Index (.KS11) slumped 22% last month while Japan's Nikkei 225 (.N225) declined 8%.
Elsewhere, Singapore's $9 billion Dymon Asia multi-strategy fund posted a similar negative return of 6.5%, narrowing its January to July gain to 7.5%, while Hong Kong-headquartered Pinpoint Asset Management's main multi-strategy fund retreated 9% last month, sources said, while Singapore-based Arrowpoint Investment Partners posted a milder 2.6% loss.
Arrowpoint, founded by former Millennium Asia co-CEO Jonathan Xiong, reduced fund level risk ahead of July after identifying signs of excessive leverage in the market, including a growing reluctance among banks to extend incremental leverage for certain positions in South Korea and Taiwan.
The move helped cushion performance, a source with knowledge of the fund said.
Polymer didn't reply to Reuters' request for comment, while Arrowpoint declined to comment.
The following table shows Asia multi-strategy hedge fund performance:
Source: Reuters reporting
