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Tiger Pacific Unloads Several Chinese Favorites

Tiger Pacific Capital was founded in 2012 on the ashes of Tiger Asia Management, which closed the same year on allegations of insider trading. In 2001, Julian Robertson, an investor well known not just for his successful tenure as the manager of Tiger Management, but also for seeding many other hedge funds, helped Bill Hwang found Tiger Asia Management. However, in 2012 the $1.6 billion fund was closed and Bill Hwang pleaded guilty to using illegal information to invest in Chinese bank stocks; he agreed to pay settlements worth over $60 million in total.

Same year, Robertson also seeded Tiger Pacific Capital, which was founded by Tiger Asia’s partners Run Ye, Junji Takegami and Hoyon Hwang. If Tiger Asia was a “Tiger Cub”, Tiger Pacific Capital is a “Tiger Grand Cub”, a name used to describe funds that were launched by alumni of a “Tiger Cub” fund. Similar to Tiger Asia, Tiger Pacific focused on Asian stocks, primarily from China. In a statement regarding his investment in Tiger Pacific cited by Reuters, Robertson said: “Asia is the best area in the world to practice the hedge fund business.”

Tiger Pacific Capital was launched in November 2012 and is owned equally by Run Ye, Junji Takegami, and Hoyon Hwang, who are the fund’s managing partners and Run Ye is also Tiger Pacific’s Chief Investment Officer. Tiger Pacific has regulatory assets under management of around $633 million and operates three funds: Tiger Pacific Domestic Fund, Tiger Pacific Offshore Fund and Tiger Pacific Master Fund. Tiger Pacific uses long and short positions and invests in Asia-related equities, the majority of which are represented by companies from China, Japan, and South Korea.

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Betting on Asian stocks is paying off handsomely for Tiger Pacific. At Insider Monkey, we estimate a fund’s performance by calculating the weighted average returns of its long positions in companies worth over $1.0 billion. Based on our calculations, Tiger Pacific Capital’s holdings gained 16.90% during the second quarter of 2017 and were 40.70% in the green in the first six months of the year. The performance of Tiger Pacific’s investment seems consistent as they were up by nearly 76% in the 12-month period ended June 30.

In its latest 13F filing, Tiger Pacific Capital reported an equity portfolio worth $140.75 million, which is fairly concentrated as it contains just 13 positions and the top five holdings amass over 70% of the value. As stated earlier, Tiger Pacific is focused on investing in Asian stocks, so it’s not surprising that all of its positions are in US-listed companies based in China or Hong Kong.

Moreover, during the third quarter, Tiger Pacific made some substantial changes in its portfolio as it sold its entire holdings in four companies and added five new holdings. In other stakes it made substantial changes and left unchanged just four positions, including the largest one, in Noah Holdings Limited (ADR) (NYSE:NOAH), a Shanghai-based wealth management service. At the end of September, Tiger Pacific held 1.44 million shares of Noah Holdings Limited (ADR) (NYSE:NOAH) worth $46.10 million.

On the next page, we are going to take a closer look at SINA Corp (NASDAQ:SINA), which represents Tiger Pacific’s largest new position, and four companies in which the fund sold its entire holdings: Tarena International Inc (ADR) (NASDAQ:TEDU)58.com Inc (ADR) (NYSE:WUBA)Autohome Inc (ADR) (NYSE:ATHM), and Vipshop Holdings Ltd – ADR (NYSE:VIPS).

In SINA Corp (NASDAQ:SINA), Tiger Pacific initiated a stake containing 124,294 shares worth $14.25 million between July and September. SINA Corp (NASDAQ:SINA) is an online media company that operates the popular Chinese social media platform Weibo. Its stock has surged by over 73% since the beginning of the year, on the back of strong financial results, growing ad revenue (which advanced by 44% on the year to $295.2 million in the second quarter) and alongside its peers in the Chinese Internet sector (for example, the KraneShares CSI China Internet ETF (NYSEARCA:KWEB), which offers exposure to Chinese companies operating in the Internet sector, is 63.5% in the green year-to-date). Therefore, given SINA Corp (NASDAQ:SINA)’s strong financial performance and the overall bullish sentiment surrounding Chinese Internet companies, Tiger Pacific probably considers that SINA Corp (NASDAQ:SINA) represents a good investment. During the third quarter, the fund added a bunch of other Internet-related stocks to its equity portfolio, including JD.Com Inc (ADR) (NASDAQ:JD) and Baidu Inc (ADR) (NASDAQ:BIDU), and it also owns a stake in Alibaba Group Holding Ltd (NYSE:BABA). These four companies are among Tiger Pacific’s top five positions in terms of value as of the end of September.

On the other hand, in Tarena International Inc (ADR) (NASDAQ:TEDU), Tiger Pacific sold its entire stake, which had previously contained 422,039 shares. The stake was added to the fund’s equity portfolio during the first quarter and the stock had had a decent run until August 22, having gained over 24%. On August 22, the stock lost over 24% as Tarena International Inc (ADR) (NASDAQ:TEDU) had posted second-quarter EPS of RMB 0.63 ($0.09), missing the consensus estimate by $0.07, the day before. Moreover, Tarena International Inc (ADR) (NASDAQ:TEDU) provided third-quarter revenue outlook of $83.65 million to $86.21 million and said it expects full-year revenue between $289.37 million and $301.43 million. After the earnings miss, Nomura downgraded the stock to ‘Neutral’ from ‘Buy’ and cut the price target to $19.50 from $20.50. The analysts said they expect slower revenue recognition, higher R&D costs and sustained investment to affect the company’s margins.

On the next page, we will discuss three other companies in which Tiger Pacific disposed of its positions during the third quarter.

Even though Tiger Pacific seems to be bullish on Chinese Internet companies, the fund closed its position in 58.com Inc (ADR) (NYSE:WUBA), having sold 323,858 shares it reported as of the end of June. The investor initiated a stake in the operator of online classifieds and listing platforms in China during the first quarter and the stock surged by 125% in the first nine months. In this way, it is possible that Tiger Pacific unloaded its stake as 58.com Inc (ADR) (NYSE:WUBA)’s shares reached their target price.

During the third quarter, Tiger Pacific sold its entire holding in Autohome Inc (ADR) (NYSE:ATHM), which contained 189,455 million at the end of June. Before the position was closed, Autohome Inc (ADR) (NYSE:ATHM) had represented one of Tiger Pacific longer-term holdings; the fund added the stake during the fourth quarter of 2015. Between the beginning of January 2016 and the end of September 2017, Autohome Inc (ADR) (NYSE:ATHM)’s stock advanced by 72%, although the bulk of the gains was this year, as the stock surged by 119% in the first nine months.

Vipshop Holdings Ltd – ADR (NYSE:VIPS) is another company in which Tiger Pacific unloaded its stake, having disposed of nearly 1.10 million shares. Among all companies in which Tiger Pacific closed its stake, Vipshop Holdings Ltd – ADR (NYSE:VIPS) is the only one whose stock has lost ground. Since the beginning of the year, Vipshop Holdings Ltd – ADR (NYSE:VIPS)’s shares have lost over 26%. Tiger Pacific initiated a stake in the company during the last three months of 2015 and between January 2016 and September 2017, the stock declined by over 43%. Vipshop Holdings Ltd – ADR (NYSE:VIPS) reported better-than-expected results in 2016 and the first quarter of 2017, but its second-quarter results were lower than expected, which reaffirmed the fears of some investors and analysts that Vipshop Holdings Ltd – ADR (NYSE:VIPS) is facing more pressure from its competitors. In August, Daiwa analysts downgraded the stock to ‘Hold’ from ‘Buy’, citing pressure in the apparel category and declining active users numbers. However, the analysts alsoo pointed out that Vipshop Holdings Ltd – ADR (NYSE:VIPS) is a potential acquisition target.

Disclosure: none