Asia credit investors feel the pain of China property exposure

Asia credit investors feel the pain of China property exposure

Summary :

HONG KONG, July 28 (Reuters) – China’s crisis-hit property sector has driven underperformance this year in some Asia-focused credit funds, including one led by a former Lehman Brothers portfolio manager, pummelling their returns and bringing years of gains to a juddering halt.

Hong Kong-based L&R Capital’s Asia Credit Alpha Fund, a hedge fund with more than half of its geographical exposure focused on China, slumped by 18.9% in 2022 as of end-May, according to documents seen by Reuters and a person familiar with the matter.

Prudence Investment Management, a Hong Kong-based hedge fund specialising in China-related credit investments, saw its flagship fund drop 2.5% by end-June, a performance described as “decent” by peers, according to a separate person familiar with the matter and documents reviewed by Reuters.

Kenny Chung, portfolio manager of Astera Capital Partners, which manages a Hong Kong based fixed-income hedge fund, said he hasn’t seen “a more challenging investment environment for at least 10 years”.

The fund managed to return 4.2% by June, mainly benefiting from net shorting China property developers early in the year and diversification to other regions later.

The damage in the mutual funds space has been just as severe.

The biggest 10 Asian high-yield mutual funds have posted hefty losses, all above 25% by the end of June, partly hit by their exposure to Chinese property developers, data compiled by Morningstar showed.