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Teng Yue, the Hedge Fund Founded by Bill Hwang’s Protege, Gets Pummeled by China’s Crackdown on Education Companies

Hit first by the Archegos implosion and now by Beijing’s efforts to rein in education and tutoring companies, Tao Li’s hedge fund is down 30 percent in 2021.

China’s crackdown on education companies is the latest bad news for Teng Yue Partners, the hedge fund founded by Bill Hwang protege Tao Li. Hwang, a Tiger cub, was head of Archegos Capital Management, the family office that imploded in late March. 

Teng Yue fell 21 percent in July and is now down 30 percent for the year, according to an investor. 

The latest losses occurred after Chinese regulators announced last month that they would ban education firms from making profits, raising capital, or going public.

Teng Yue is an investor in two stocks that were hit hard by the news: Chinese for-profit educators Gaotu Techedu and TAL Education Group.

Earlier in the year, the hedge fund took a hit when the liquidation of Archegos caused Gaotu (then known as GSX) to tumble.

Like Hwang, Li also runs an aggressive fund that placed stock bets via highly levered total return swaps and as a result did not make quarterly 13F filings with the Securities and Exchange Commission. 

Both Archegos and Yue were levered long GSX, which short sellers have long argued is a fraud and part of a short squeeze last year and early in 2021. The stock went as high as $149.05 per share in January, during the short squeeze of Melvin Capital, which was short GSX in addition to GameStop. 

The stock began falling during the liquidation of Archegos’ portfolio in late March, when prime brokers started unloading the stock they beneficially owned as part of the swaps arrangements. (Since then, those banks have reported billions of dollars in losses related to Archegos.)

Teng Yue fell 29 percent in March and was virtually flat for the year at that point, Institutional Investor previously reported

Gaotu shares have continued their downdraft, with most of the decline coming in July. The stock is now trading around $3.50 per share.

TAL Education is now down about 92 percent for the year and traded Monday below $6 per share, from a high of around $90 per share in February.

Because of its reliance on total return swaps, Teng Yue is known for its volatility. Last year, the hedge fund reported a 70 percent gain.   

The firm disclosed more than $10 billion in regulatory assets under management at the end of 2020 — more than double the $4 billion it had in 2019. (Regulatory assets include leverage.)

Tao Li, Teng Yue’s founder, had worked at Hwang’s former hedge fund, Tiger Asia, before it was shuttered following a settlement with the SEC over insider trading. In addition, Hwang pled guilty in 2012 to criminal wire fraud related to allegations of insider trading in Chinese bank stocks. Li did not return a call for comment.

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