The Fall of China’s Hedge-Fund King (Published 2016) (2024)

At 10:33 a.m. on Sunday, Nov. 1 of last year, the highway police in Ningbo, an industrial city on China’s eastern coast, posted a seemingly innocuous message to their official microblog. “Due to sudden traffic control,” the message read, “all the entrances and exits of the G15 Expressway at Hangzhou Bay Bridge have been closed.”

That weekend, Xu Xiang, one of the wealthiest men in China, had been visiting Ningbo, his hometown, to attend his grandmother’s 100th birthday party. As the founder of Zexi Investment, one of China’s most successful hedge funds, Xu had consistently produced returns that were truly unbelievable: His worst-performing fund had grown by nearly 800 percent in five years. He had also survived countless corruption investigations, market falls, purges and other scares. Yet even as his legend grew, Xu remained intensely secretive. He had amassed a fortune by trading on knowledge and information no one else had, rumors no one else knew — a strategy perfectly crafted for China, where information is tightly controlled and reluctantly released. (Almost every source I approached for this article would only speak to me anonymously, fearing government reprisal or harm to their business.) Even as Xu grew richer and more powerful, he kept nearly every detail about his personal life and his trading techniques jealously hidden.

That equilibrium seemed certain to crumble on June 12, when the Chinese stock market began a free-fall. In the span of three weeks, the market lost a third of its value. It continued to careen downward throughout the summer, with major declines on July 27 and Aug. 24. On the second of these, named Black Monday by The People’s Daily, the Shanghai composite index fell by 8.5 percent, its worst single-day tumble in eight years. In the span of two and a half months, $5 trillion was wiped out of the market. The ripples were felt around the globe. On Black Monday, the Dow Jones industrial average fell more than 1,000 points shortly after opening, and the FTSE 100 index in London lost $116 billion. Yet Xu (pronounced shu) somehow managed to survive this free-fall unscathed.

Despite his wealth, the party in Ningbo had been a low-key affair. Xu’s family shared his taste for anonymity. His wife preferred the subway to her chauffeured car, and his grandmother still lived in the same middle-class neighborhood where Xu grew up. But the festivities were interrupted a little before 10:30 that Sunday, when Xu received a message bearing a warning: The authorities were coming for him.

Xu left the party immediately and sped north on the G15 Expressway toward Shanghai. As he drove, he passed neighborhoods of squat gray apartment buildings with smog-stained walls, unkempt courtyards and barred windows. He crossed the Fenghua River, which bisects Ningbo, and curved along Hangzhou Bay, racing toward the bridge. But he didn’t know about the police blockade. When he reached the bridge, the authorities ushered him from his car and shuttled him to the side of the expressway to an office of the highway patrol.

For all the secrecy and intrigue that had long surrounded Xu, the moment of his downfall was strikingly prosaic. That evening, a photo of him appeared on the Internet. Dressed in a white Armani coat, gray button-down shirt and rimless glasses, he is clean-shaven, with pudgy cheeks and a receding mop of unruly black hair. Someone out of frame is carefully pulling back the sleeve on Xu’s coat, revealing the clasp of a handcuff around his wrist. Xu stares directly into the camera, seemingly unmoved or uncomprehending. If he is surprised or distraught, his face betrays no hint of it. It is the only known photograph of the man who, until that morning, had been the king of China’s stock market.