Chinese hedge fund Dantai to liquidate flagship fund

By Xie Yu and Summer Zhen

HONG KONG (Reuters) – Hong Kong-based hedge fund Dantai Capital is closing its main fund, saying its investment style no longer fits with current conditions in Chinese markets, according to a letter sent to investors last week.

More than 90% of the fund would be liquidated over the next three months, Dantai told investors in a June 27 letter reviewed by Reuters.

In a statement responding to Reuters’ queries, Dantai said the company would still be managing Dantai Partnership Fund and Dantai Alpha Fund after its Master Fund’s liquidation. Dantai also said the letter was not intended to be public.

The closure highlights how challenging the year has been for China asset managers, as a hoped-for reopening rally following the lifting of strict COVID restrictions has faded.

Months of disappointing economic data in China has MSCI’s China index down 6% on the year, against a 13% gain for world stocks.

Dantai had said in the June investor letter that China markets were “no longer favourable for the investment philosophy and style of the funds to succeed in the long term”.

“Over the longer horizon, China markets may likely see persistently waning liquidity, weak domestic confidence and significant geopolitical risks,” the fund manager said.

Dantai’s main Master Fund lost 46% last year and is down 26% for the first five months of 2023, according to screenshots of investor letters from earlier in June, which were reviewed by Reuters.

Data firm Eurekahedge’s gauge tracking funds with China-focused long-short equity strategies recorded a loss of around 3.7% for the same period.

Dantai’s more recent June letter said market conditions in China were likely to stabilise over the third quarter, with potential for government stimulus, “which should aid the portfolio wind-down”.

Dantai last reported $838 million of gross assets in a February 2023 regulatory filing, of which $774 million was in the Master Fund which had 114 beneficiary owners.

Overseen by veteran investor Jason Xiang Jisong, Dantai launched in 2017 and made double-digit returns each year until 2022, investor letters showed.

(Reporting by Xie Yu and Summer Zhen; Editing by Alex Richardson)