One hedge fund made a 75% return in two days on a big bearish bet on China

A small hedge fund has made big money on the chaos in China.

Emerging Sovereign Group’s Nexus fund made a 75% return in two days last week thanks to a big bearish bet on China, according to The Wall Street Journal’s Juliet Chung.

The Nexus fund made about $US100 million on put options it had bought on the yuan prior to the People’s Bank of China unexpected devaluation of the currency.

Put options allow investors to profit when the value of the underlying asset (in this particular case, the yuan) falls.

The Nexus fund erased its earlier lossed and is now up about 50% year-to-date. The fund had been down 11% through the end of July, the report said.

Emerging Sovereign Group was founded in 2002 by Morgan Stanley alums Kevin Kenny, Mete Tuncel and Jason Kirschner with seed money from legendary fund manager Julian Robertson, the founder of Tiger Management. The Nexus fund is managed by Brian McCarthy, who joined ESG in 2011 from RBS where he worked in foreign exchange sales. The firm now manages $US4.5 billion in total.

Brian McCarthyVia LinkedInThe Nexus fund is managed by Brian McCarthy

Carlyle acquired a 55% stake in ESG back in 2011.

Carlyle, which is primarily known for doing buying companies, has been making investments in hedge funds in an effort to diversify its strategy.

The performance is a bit of good news for Carlyle, which has seen a few of the hedge funds it backs take hits in recent weeks.

Last week, Claren Road, which managed $US8.5 billion a year ago, got hit with another wave of investor redemptions, bringing its AUM to approximately $US2.1 billion. Then, in July, Vermillion, a commodity hedge fund backed by Carlyle, saw its flagship fund’s assets fall from nearly $US2 billion to less than $US50 million.

Carlyle declined to comment.

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