While most of the investment world seemed to have been caught flat-footed by last week’s yuan’s devaluation, a tiny fund within Carlyle’s Emerging Sovereign Group (ESG) apparently positioned itself for just that play.
According to the WSJ, Brian McCarthy, an ex-bond salesman behind ESG’s Nexus fund, was looking for a way to short China as a whole, believing that “much like the U.S. and Europe,” China “will soon be dealing with the fallout from a credit bust.” Well, unfortunately for him, he simply couldn’t do that. A-shares and yuan bond regulations were just too tight, forcing him and his fund to snap up puts on the nation’s currency instead – a bet so risky that he was able to buy them on the cheap.
With the PBOC’s surprise devaluation however, Nexus’ inconvenience turned into a jackpot move, raking the fund $100 million in just two days and sending its performance numbers from down 11% to up 60% for the year.
This is a great thing for Carlyle, which has been having problems with its hedge funds business lately, but, this might not be too great for Nexus: while this undoubtedly puts them on the map, this also makes them “malicious short-sellers” and “hostile foreigners,” along with that nefarious Bill Gross and that scheming George Soros.
Watch your back boys, I can already imagine the headlines.
Photo: Charis Tsevis