Fund manager nurses losses in China stocks after making a ‘mistake’ in underestimating impact of education crackdown

Shi Lin’s Greater China-focused hedge fund, Brilliant Partners Fund, recorded an estimated loss of more than 12 per cent this month as of July 23

The fund lost 6.6 per cent in the first half, lagging behind the 7.1 per cent rise in Greater China stock-focused hedge funds, according to Eurekahedge gauge

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A screen at a securities company in Beijing on May 6, 2019.Contrary to global conventions, China represents losses and declines in green, using red to denote gains and advances. Photo: AFP

Published: 2:28pm, 30 Jul 2021Updated: 2:28pm, 30 Jul 2021

The founder of Hong Kong’s Brilliance Asset Management said he made a mistake in underestimating the impact of Beijing’s reforms in the education sector, but struck an optimistic note about two players in an industry many are writing off.

Shi Lin’s Brilliance has invested in the sector, which saw its fortunes plummet after China unexpectedly banned certain after-school tutoring companies from making profits, going public and hosting classes on weekends and holidays. Shares of Chinese technology and education stocks began tumbling last Friday on news of the policy turn, spurring a record three-day drop in a gauge tracking the biggest US-listed Chinese firms.

“It’s my mistake to underestimate the policy impact and the impact to investor sentiment,” Shi wrote in emailed commentary seen by Bloomberg that was sent to investors after the new rules were announced on Saturday. Still, he said, he thinks the fund manager’s understanding of the fundamentals is “right in the long term.”

Shi’s Greater China-focused hedge fund, Brilliant Partners Fund, meanwhile recorded an estimated loss of more than 12 per cent this month as of July 23, according to people familiar with the matter, who asked not to be identified as the information is private. It’s unclear what drove the declines, but they came as a rare setback for the fund manager, which had US$6.8 billion of assets in hedge and long-only funds at the end of January, according to a regulatory filing.

The fund lost 6.6 per cent in the first half, according to a newsletter seen by Bloomberg News. A Eurekahedge gauge that tracks the monthly performance of Greater China stock-focused hedge funds rose 7.1 per cent in the six months.

In a response to questions, a representative of Brilliance said by email that the information was “incomplete and incorrect, and highly prejudicial,” without providing details.