Bloomberg: Solitude’s Asia Hedge Fund Gains 51% This Year to Rank Near Top
By Bei Hu, Originally published on BN 14 August 2017
Joel Werner led his hedge fund to a 51 percent gain this year through July to rank among Asia’s top-performing hedge funds, even as he largely steered clear of the Chinese technology giants that powered gains at peers.
His Solitude Capital Master Fund profited from doubling down on Indian financial services provider IIFL Holdings Ltd., and also made money from bets on Chinese biotechnology firm BeiGene Ltd. and motel chain China Lodging Group Ltd., Werner said in an interview, declining to disclose the fund’s size. The Solitude fund is the third-best performer this year among Asian hedge funds investing in the region as a whole or in specific countries, according to data from Singapore-based Eurekahedge.
The gains represent a sharp rebound for the fund, which got off to a rocky start after its December 2015 debut, with a 15 percent loss last year. This year, the fund has trounced Asian competitors, that have climbed more than 10 percent in the first seven months, according to Eurekahedge. While many peers benefited from Internet stocks including Alibaba Group Holding Ltd. and Tencent Holdings Ltd., which have soared more than 60 percent this year, Solitude stuck with wagers on what it considers misunderstood companies.
The worst thing that you can do is, at a dinner-table conversation, you talk about a company you’ve invested in, and have everyone nod their heads in agreement and say ‘Yeah, that sounds great’, Werner said in the interview. Because you are too late.
A former managing director at hedge fund ChinaRock Capital Management, which is a Farallon Capital Management affiliate, Werner named his own outfit Solitude to indicate a focus on independent research.
Solitude added to IIFL after India’s move to retire high-denomination banknotes last year sent its share price plunging by about 19 percent in the week after Prime Minister Narendra Modi’s Nov. 8 announcement. Solitude “materially increased” its IIFL investment amid the panic, Werner wrote in the fund’s first-quarter newsletter to investors.
Shares of IIFL more than doubled this year, as quarterly profit, loans under management and wealth-management assets jumped. IDFC Bank Ltd., the nation’s newest listed private-sector bank, bought a stake.
Solitude increased its holdings of BeiGene and China Lodging on strong operating data, said Werner. China Lodging’s American depositary receipts soared 92 percent this year through Friday while BeiGene’s shares more than doubled.
Werner likes the track record of China Lodging Chairman Ji Qi, who had co-founded two other publicly-listed companies, Chinese online travel agency Ctrip.com International Ltd. and Homeinns Hotel Group. Investors underestimate the value of China Lodging’s franchise business, which has allowed it to expand its motel chain with less capital tied up than owning the properties themselves, boosting its return on invested capital, Werner said.
All three companies have benefited from the retreat of foreign rivals, said Werner. ADRs of BeiGene got a boost from a July deal in which it bought the China commercial operations of New Jersey-based drugmaker Celgene Corp. to collaborate on experimental cancer therapy, giving it revenue that it previously lacked. It also received an $150 million equity investment and $263 million in upfront license fees as part of the deal.
One of Solitude’s more controversial bullish bets is Chinese wealth manager Noah Holdings Ltd., whose ADRs jumped nearly 40 percent this year. Bears have circled the company, which distributes wealth-management products, amid China’s crackdown on shadow banking, Werner said. Other shortsellers may see it as a proxy of China’s economic hard landing, he added.
Solitude makes most of its investments in China and India. Its 10 largest buys accounted for 72 percent of net asset value at the end of June, according to a presentation. Allowing investor redemption only annually, it holds its long investments for as much as three years and its bearish bets for up to a year.