The latest news on China’s Carl Icahn…
Chinese fund manager Xiang Xu, also known as China’s Carl Icahn, was arrested by securities regulators almost two weeks ago now, and has not been heard from since. His firm, Zexi Investment, has been one of the top performers in over the last several years in China. Or has it?
Xu is the 39-year-old founder and general manager of Shanghai-based asset management firm Zexi. The Chinese authorities have completely locked down any information about Xu or his whereabouts since his arrest. All that is known is has been detained for “illegally obtaining inside information about the stock market and manipulating prices,” as reported by the state Xinhua News Agency on November 1.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
The exact status of Zexi is also unclear. According to public filings, Zexi had been serving private clients in seven funds with 20 billion yuan under management. Zexi’s website claims two of the funds have increased in value 30 fold from an initial investment made in 2010 to October of this year.
The only recent news on the case of China’s Carl Icahn was the announcement on November 10th that the Shanghai Stock Exchange was enforcing a two-year trading suspension on all shares held by parties in four companies connected to Xu.
More on Zexi Investment
The asset freeze on Xu-related firms initially began on September 9th, and includes Wenfeng Great World Chain Development Corp., a consumer electronics company in which Xu’s mother holds a 15% stake, and Daheng Science and Technology, an optics components manufacturer where she holds a just under 30% 29.8 stake. The remaining two firms with trading freezes are consumer retailer Ningbo Zhongbai Co. and residential property developer Deluxe Family.
Xu started Zexi in 2009, and its website claims every fund run by the firm had produced annual yields of 160% to 323% as of October of this year.
More on Xu Xiang, China’s Carl Icahn
Born in Zhejiang Province in eastern China, Xu began investing while in high school by borrowing 30,000 yuan from his parents, according to a 2012 interview. It was a good time to get into the markets, as the Shanghai main index rose 378% between 1992 and 1994.
“I studied the stock market by reading books and attending lectures, and by studying foreign investment techniques,” Xu said in the interview. By the late 1990s he had become more aggressive, and profits rolled in.
Xu moved to Shanghai in 2005. He founded Zexi in 2009, with a focus on investing in the secondary market in China.
China’s Carl Icahn later shifted the bulk of his operation to Beijing, and began spending most of his time in the capital.
Of particular interest, Zexi performed strongly the Chinese stock market meltdown this summer, where the Shanghai index dropped by almost a third. According to Chinese financial data service Licai.com, in the first nine months of this year, Zexi’s investments were up an average 218%, far higher than the second place fund firm with a 94% return for the period.
Xu has been fiercely protective of his privacy from the beginning. He has worked hard to avoid the spotlight, staying away from major investor conferences and other public events. China’s Carl Icahn did agree to an interview with the China Securities Journal in 2011 and also with Caixin in 2012.
Whether or not Xu is guilty, the latest crackdown is having a chilling effect on the entire Chinese financial industry.
The WSJ notes:
While the campaign—which some in the market have dubbed “kill the chicken to scare the monkey” after a Chinese proverb—has gone some way to reassuring the tens of millions of retail investors who dominate share trading in China, it has sent a chilling message to asset managers and other financial-industry professionals, many of whom are now consulting with lawyers and changing how they do business.
Fund managers say regulators have been telling them what they like and don’t like via warning letters from stock exchanges to brokers. Piling on buy orders when stocks are rising is bad. Dumping shares when the market is tanking also gets a warning.
Finally the Journal notes:
“The government’s crackdown is necessary and it has restored some confidence,” said Wu Yunfeng, a retail investor in Shanghai. But he also has some lingering doubts.
“The authorities have arrested a lot of people, but we still don’t have a clear picture regarding the real reasons behind it,” Mr. Wu said of the crash. “Sometimes we just tell ourselves that we don’t really need to know the truth, as long as the market goes up.”
It looks like the days of farmers day trading in China have ended – at least for now.