Carlyle Finally Has A (Hedge Fund) Winner

David Rubenstein will not be joining your Chinese economy support group.

That's more like it!

There has been much rending of garments and losing of money among the hedge funds in China lately. Carlyle Group’s Emerging Sovereign Group was among the renders and losers, down by double-digits through the end of last month, which is not exactly what Carlyle needs from its non-Claren Road hedge funds right now. But then China decided to reward ESG’s lack of faith in it with a yuan devaluation, and now ESG is up 50% on the year.

A Carlyle Group LP hedge fund that anticipated a sudden currency-policy shift in China gained roughly $100 million in two days last week, a sign of how some bearish bets on the world’s second-largest economy are starting to pay off.

The 75% return for Emerging Sovereign Group’s Nexus fund developed after China unexpectedly pushed the value of the yuan lower on Aug. 11, according to people familiar with the matter….

The fund purchased a string of put options that gave it the right to sell the currency at preset prices, within agreed-upon time frames. Nexus was able to buy those options on the cheap over time because most investors expected Beijing to support the yuan rather than let it fall.

Alas, for those of you who lost some of that $10 billion that went “poof” last month, don’t get any big ideas.

Putting on a similar trade now would be difficult, one hedge-fund investor said, since the prices of yuan puts are now higher due to the currency devaluation.

Hedge Fund Gains $100 Million in Two Days on Bearish China Bet [WSJ]