US investors looking to ditch Hillhouse assets

Hong Kong — Billionaire Zhang Lei’s Hillhouse Investment saw its hedge fund assets plummet by a third last year to $27.5bn, a US regulatory filing showed.

Hillhouse, a global alternative investment firm founded by Zhang in 2005, is known for long-term bets on Chinese tech, consumer goods and healthcare companies but these sectors have struggled due to regulatory crackdowns and weakened demand in recent years.

Chinese stocks have also slumped for three consecutive years and major US pension and endowment funds have been reducing their exposure as scrutiny and restrictions on US investments in the world’s second-largest economy have intensified under president Joe Biden. The MSCI China index is down 60% from its 2021 peak.

Several US-based investors have either withdrawn their capital from hedge funds under Hillhouse’s public investment arm, HHLR, or are considering doing so due to underperformance, according to two sources familiar with the matter who declined to be identified.

Hillhouse declined to comment on capital outflows or the March 29 filing.

A source familiar with the HHLR portfolio said a substantial portion of capital has been shifted from HHLR hedge fund vehicles to customised portfolios or segregated managed accounts.

According to a March report by data provider With Intelligence, which estimated HHLR’s 2023 asset decline at about $10bn, the asset plunge was the largest among global billion-dollar hedge funds last year.

One of HHLR’s top holdings, cancer treatment specialist BeiGene , has seen its shares in both US and Hong Kong markets drop more than 60% since 2021 amid net losses and setbacks in expanding overseas.

Adding to HHLR’s challenges, a unit was investigated by the China Securities Regulatory Commission on suspicion of violations of share transfer rules last year.

Fundraising pressures and market uncertainties have forced numerous China-focused offshore hedge funds to either shut down or downsize in the past 18 months. Many of them, including HHLR, have partially shifted their investment focus to non-China equities.

The waning interest in China contributed to a net outflow of $15.6bn from Asian hedge funds last year, according to fund services firm Citco.

Amy Castle, head of hedge funds research at With Intelligence, said a rebound in the Chinese economy this year could restore some confidence, but “geopolitical considerations remain key”.

On average, China-focused hedge funds reported a 5% loss last year, data from hedge fund platform HFR shows.

Their performance has seen some improvement this year after steps by the Chinese government to stabilise the stock market.

Reuters