Chinese Hedge Fund Responds to Investor Ire After 34% Loss

(Bloomberg) -- Chinese asset manager Loyal Valley Capital Co. responded to pushback from clients who lost a third of their money on a product last year, as the 70 billion yuan ($11 billion) manager became the latest target of investor ire.

One of the firm's hedge funds allegedly deviated from its theme of tech- and consumer-stocks, while repeated requests for dialogue with fund manager and founder Lin Lijun were rejected as losses mounted, local media reported, citing a letter from an unnamed group of investors addressed to the nation's securities regulators.

Lin joins a growing list of prominent fund managers in China to come under criticism from retail investors for their performance.

The asset manager denied the accusations in a response to Bloomberg, saying the letter contains many misstatements and reflects “irrational” investor requests after the losses, which it called temporary. The asset manager said it is now expanding its research team to win client trust though long-term performance. The mostly private equity-focused firm manages more than 20 billion yuan in hedge funds through an affiliate under the same brand.

READ: China's Top Quant Hedge Fund High-Flyer Apologizes for Loss (1)

The China Securities Regulatory Commission did not immediately reply to an e-mailed request for comment.

Loyal Valley and Lin, who turned to private fund management in 2015 after starting and building up what later grew into top mutual fund house China Universal Asset Management, have become the latest target of investor frustrations after a volatile year for China's stocks.

E Fund Management Co.'s star manager Zhang Kun received “verbal abuse” after a popular trade unraveled in the first quarter. Shanghai Minghong Investment Management Co. saw big redemptions following a stretch of underperformance. Top quant fund Zhejiang High-Flyer Asset Management apologized last week after record losses.

Steep Losses

The net value of a hedge fund product which investors bought from Loyal Valley at the beginning of last year dropped to 0.66 yuan as of Dec. 31, according to the letter, which has circulated online in recent days.

Loyal Valley acknowledged the letter, a copy of which was obtained by Bloomberg. The letter has drawn signatures from more than 40 investors, state-backed publication The Paper cited one of the authors, under the pseudonym Li Hai, as saying.

China's retail investors, who still dominate stock trading volumes, are exerting more pressure on fund managers as the internet gives them greater influence. High net-worth individuals accounted for 43% of assets managed by Chinese private securities funds, the equivalent of hedge funds, as of end of 2020, according to the Asset Management Association of China. That makes them the largest investor group and compares with a share of about 14% in the U.S., according to a report released in September.

With assistance from Bloomberg