Hedge Fund Veterans Who Blew Themselves up Now Courting Chinese Investors

January 11, 2016, 9:19 AM UTC
Renminbi banknotes are placed on a bank staff's table in a bank in Lianyungang, east China's Jiangsu province on August 11, 2015. China's central bank on August 11 devalued its yuan currency by nearly two percent against the US dollar, as authorities seek to push market reforms and bolster the world's second-largest economy. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
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Veterans of Long-Term Capital Management, the infamous hedge fund developed by Nobel Laureates and PhDs that imploded in 1998 and required a Wall Street bailout, are now pitching hedge funds to wealthy Chinese investors.

Their new company, called Sycamore Investment Services, was founded to connect wealthy Chinese with overseas hedge funds and alternative investments, the industry’s preferred sobriquet, at home, according to a report by Bloomberg.

There’s no doubt that rich Chinese are demanding services. Noah Holdings, sometimes called the Merrill Lynch of China, went from overseeing $3.7 billion in 2011 to $10.3 billion in 2014. And last week’s 11% crash in Chinese stocks, in addition to today’s 5.3% decline in Shanghai’s composite index, may entice wealthy traders to look outside mainland China. Many, of course, already have, as last month’s drop of over $108 billion in the central bank’s foreign reserves indicates.

But the timing of the attention from international hedge funds is curious. They had a terrible record last year. The HFRI Fund Weighted Composite Index fell 0.85% last year and trails the S&P 500 over the last five years. Separately, the LTCM veterans carry baggage, even if some have run successful funds since LTCM’s collapse in 1998.

Rich Chinese investors might take some solace in their meetings with new advisors knowing they’re not, according to recent history, the dumb money at the table.