Teng Yue, Bill Hwang Protégé’s Hedge Fund, Fell 29 Percent in March Rout

Both Teng Yue and Hwang’s Archegos held levered positions in GSX, which is now tanking.

Illustration by II

Illustration by II

Teng Yue Partners, the hedge fund founded by former Bill Hwang protégé Tao Li, lost 29 percent in March as it fell victim to the liquidation of at least one of the stocks held by Hwang’s Archegos Capital, according to an investor.

Li runs an aggressive hedge fund that places its stock bets via highly levered equity swaps, much like Hwang’s Archegos family office. Neither Teng Yue nor Archegos have made quarterly 13F filings with the Securities and Exchange Commission.

Using swaps, both were levered long GSX Techedu, the Chinese online education company that short sellers say is a fraud and part of a short squeeze that began last summer, as Institutional Investor previously reported. The stock went as high as $149.05 per share in January during the short squeeze of Melvin Capital. (In addition to GameStop, Melvin was also short GSX.)

GSX shares have been falling heavily since mid-March, beginning with news that the SEC would soon start enforcing new legislation that would require Chinese companies to open up their audit books to U.S. regulators or face delisting from the exchanges.

Deloitte, GSX’s auditor, has not yet signed off on its 2020 financial statements.

The stock fell further as the liquidation of Archegos’ portfolio began when prime brokers started unloading the stock they beneficially owned as part of the swaps.

Goldman Sachs, which had been the top owner of GSX shares at year end, reported last Friday that it had dumped more than 22 million shares in February and March, cutting its holdings from 24.6 percent of the outstanding shares as of Jan. 29 to 7.3 percent.

Teng Yue had previously told investors that it had done the due diligence on GSX and that it was not a fraud, according to Muddy Waters’ Carson Block, who has said both Archegos and Teng Yue were behind the short squeeze. Muddy Waters claims that most of GSX’s users are bots.

“My understanding is that Teng Yue told its LPs that it had spent a significant amount of money, possibly as much as $2 million, on GSX,” he said. “I have to believe that a smart money fund spending as little as $100,00 would have been able to easily confirm that GSX was a substantial fraud. If Teng Yue has in fact made this claim, something is seriously wrong.”

When the Archegos market chaos began, Teng Yue told investors it was down “in the teens” in March, as II previously reported. But that was before the liquidation led the hedge fund to fall further during the month’s final days, the investor said.

Teng Yue, known for its volatility, had gained 40 percent this year through February, which makes it virtually flat for the year through March. It rose 70 percent in 2020, according to the investor.

Teng Yue disclosed more than $10 billion in regulatory assets under management at the end of 2020, a number that includes leverage. That was more than double the $4 billion it had the prior year.

Li had worked at Hwang’s former hedge fund, Tiger Asia, before it was shuttered following a settlement with the SEC over insider trading. He did not return a call for comment.