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Bridgewater funds thrive in China helped by bonds

By Summer Zhen

HONG KONG, Sept 25 (Reuters) - Billionaire Ray Dalio's Bridgewater Associates saw its Chinese funds deliver strong returns this year buoyed by a rally in the mainland bond market even amid tough macroeconomic conditions.

One of its flagship yuan-denominated funds, the All Weather Plus No. 2 fund rose 11% this year through August, after a 0.3% gain in August and a 3.6% jump in July, according to an investor letter reviewed by Reuters.

That compared with a 6.2% tumble in August of China's CSI 300 Index, or a 2.7% drop for the first eight months. The fund achieved positive returns every year since it launched in 2020.

Bridgewater's gains this year were largely driven by positions in Chinese government bonds as prices jumped after the central bank cut lending rates several times to bolster the economy, two people familiar with the matter said. China's local currency sovereign bonds have returned over 3% so far this year.

The Connecticut-based firm's outperformance amid China's faltering recovery and market volatility consolidates its position as the biggest foreign hedge fund in the country, sending its assets under management (AUM) in mainland China to more than 30 billion yuan ($4.1 billion), one of the sources, who declined to be identified due to the sensitivity of the matter, said.

In a response to Reuters queries, President and Chief Commercial Officer Kyle Delaney highlighted that China remains an important market to the firm.

"As the second-largest economy in the world, it's critical to understand China's impact on the local and global economies," Delaney said.

Bridgewater's "All Weather" strategy, conceived by Dalio, a big enthusiast and investor in China, is structured to achieve stable returns across economic cycles through allocating funds to diversified asset classes, from stocks, bonds to commodities.

The rare success also widened its performance gap with other global asset managers competing in China such as BlackRock and Fidelity whose long-only products struggle to beat the benchmark.

In a road show last month, Bridgewater told investors it was bullish on Chinese government bonds as there was room for policymakers to further lower interest rates to support the economy, according to one of the people. The valuation of Chinese equities is also attractive, the company said.

Bridgewater declined to comment on its fund details.

Beyond China, the firm has been expanding its Singapore operations to deepen Bridgewater's focus on the Asia Pacific region, Delaney added. ($1 = 7.3035 Chinese yuan) (Reporting by Summer Zhen; Editing by Jacqueline Wong)