• Beeneet Kothari runs Tekne Capital and made more than 22% last year thanks to Chinese bets.
• Kothari, a former PM for famed investor Stan Druckenmiller, has been investing in China since 2005.
• "You've woken up the giant at the same time as it's cheap," he said about China.

Twenty years after first investing in China, Beeneet Kothari is as bullish as he's ever been about the country's prospects.

The founder of the $1.2 billion hedge fund Tekne Capital, headquartered in New York but with a local team in China, said he's following the mantra of his old boss's former boss. Kothari was a portfolio manager for billionaire Stan Druckenmiller's Duquesne Capital. Druckenmiller worked for billionaire George Soros, who said money is made when you discount the obvious and bet on the unexpected.

To Kothari, the obvious — in light of President Donald Trump's election and his administration's aggressive trade policies toward China — would be to run from the country. But he's betting on the unexpected, and others have as well as Chinese equities have ripped to start the year thanks in part to the breakthrough from AI startup DeepSeek.

"The starting point on China is very different today than five years ago, 10 years ago," he said, and "when stocks go down 90%, it's time to start asking what can go right. That's where you are with China."

A trade war is not ideal, but any pain that Trump's proposed policies would bring to Chinese stocks is muted because so much Western capital has already left the country, he said. In the meantime, plenty of investors will be looking to get into the market thanks to DeepSeek.

Kothari predicts that "not dozens, not hundreds, but thousands of models get launched" over the next two years from DeepSeek and other companies like TikTok's parent company, ByteDance.

"It's now like you've woken up the giant. And you've woken up the giant at the same time as it's cheap," he said.

While some might be rushing into the country for the first time, Kothari has significant experience investing in China. At Duquesne, he and Druckenmiller worked with Alibaba founder Jack Ma to buy a stake in the company, which was valued at roughly $10 billion. The pair also invested in JD.com before it went public.

Tekne made more than 22% last year in part thanks to bets on Chinese companies such as GDS, a data center company, a person close to the firm told Business Insider. By comparison, Hedge Fund Research's China index was up just over 8%, and the average manager returned roughly 10% over the same period.

A pair of industries he'll be watching closely show how he believes China is at the forefront of innovative tech but also institutionalizing generally. He believes the country will lead the robotics movement because "robots are basically software plus large-scale hardware manufacturing — there's one country that excels at large-scale hardware manufacturing."

But enterprise software — a dominant industry in the US, with companies like Salesforce and Oracle ubiquitous across corporate America — is still in its infancy in China.

"The demand exists, the talent exists, now you can write software in a snap with AI. I think enterprise software is going to become a massive, massive industry," he said.

And it's a cheaper bet than anything in the US.

"If you bought a basket of Series B companies in China, and then you bought a basket of Series B companies in Silicon Valley today, I'll take that first basket because I think you got a good price," Kothari said.

• New releases from the Chinese AI firm DeepSeek tanked stocks like Nvidia, Tesla, and Alphabet.
• DeepSeek's open-source AI models led to a market rout of hundreds of billions of dollars.
• Hedge funds have been exiting Magnificent 7 stocks for half a year, Goldman Sachs said.

DeepSeek — the Chinese AI company that has upended the US tech industry with its open-source models — caused the US stock market to lose hundreds of billions of market value within a day.

The pain was felt by stockholders of the biggest names of the past couple of years: Nvidia, Tesla, Alphabet, and more. Those mega-cap companies and the rest of the so-called Magnificent 7 were the driving force behind the S&P 500's 23% gain in 2024 and became must-haves for many hedge funds.

However, it appears many of those hedge funds started to crystallize some of their gains before the recent sell-off.

A Goldman Sachs report from the bank's prime services unit, which caters to the biggest hedge funds in the world, said managers had been steadily selling out of Magnificent 7 stocks since June. The report notes that exposure to these stocks was at the lowest levels since mid-2023 after hitting a high last summer.

"Mag7 stocks collectively now make up ~15.5% of total US Net exposure," the January report said. In June, it was at 21%.

There was likely still plenty of pain felt across midtown Manhattan and Greenwich, Connecticut, though the full extent won't be clear until funds' January returns trickle out.

Regulatory filings on hedge funds' holdings are delayed, so it can be difficult to gauge what funds are doing in real time. But these filings provide a snapshot of how invested managers were at a certain point in time — and who got out before disaster struck.

A review of the filings revealed several big names that moved in and out of these stocks.

For example, Mala Gaonkar's SurgoCap Partners sold its stakes in Microsoft and Nvidia during the third quarter while adding a large position in Meta, which has been mostly unaffected by the sell-off. The billionaire Stanley Druckenmiller's family office also liquidated nearly all of its Microsoft and Nvidia holdings over the same period.

Philippe Laffont's Coatue sold large chunks of its Nvidia and Meta positions but added to its Microsoft, Amazon, and Alphabet stakes. Alex Sacerdote's Whale Rock trimmed its Meta, Nvidia, and Alphabet holdings, but added to its largest position, Amazon, in the third quarter.

The already busy year for Magnificent 7 stock analysts won't slow down anytime soon — Microsoft, Meta, Tesla, and Apple are all set to report earnings later this week.

• Big-name managers mostly performed well in 2024, but some under-the-radar players soared.
• Managers like Glen Kacher's Light Street and David Rogers' Castle Hook returned 60% last year.
• Jason Mudrick's firm returned more than 31%, a person close to the manager said.

The biggest hedge funds in the world — names like Citadel, D. E. Shaw, and Millennium — had good years in 2024, as Business Insider has reported.

While most of these funds failed to match the S&P 500's 23% gain, their investors love their consistency and risk management.

But allocators also need managers who can make big bets and rip past peers and the market in a good year, as seen in the growth and interest in Chris Rokos' eponymous fund.

BI identified a few hedge funds that have been around but are not as recognizable as their industry subsector peers — though that might change after their impressive performance.

Big-name macro funds, for example, had strong years thanks to geopolitical events like the US election, which many were able to capitalize on. Rokos, PointState, and Rob Citrone's Discovery Capital Management all recorded large gains — but none of these bigger names matched the 60% gain by David Rogers' Castle Hook.

Rogers, a former investor in George Soros' family office, launched Castle Hook in 2016 with his fellow Soros alum Joshua Donfeld with capital from the billionaire Stanley Druckenmiller. The manager now runs $4.4 billion, a person close to the firm said.

Light Street Capital, a Tiger Cub run out of California by Glen Kacher, is smaller and less well known than other firms linked to Tiger Management's late Julian Robertson, such as Tiger Global, Coatue, and Viking Global. But Light Street's 59.4% gain last year and Kacher's focus on artificial intelligence are sure to draw attention.

Kacher said on X that his "AI5 basket" outperformed the Magnificent Seven last year. There's some overlap between the two groups of stocks, specifically Nvidia and Microsoft, but the other holdings in his basket are semiconductor and AI-infrastructure companies such as Advanced Micro Devices and Broadcom.

Meanwhile, when stocks are soaring, there's often a lack of interest in credit managers, especially those playing in the distressed space. But Jason Mudrick's $4 billion firm managed to pull out a market-beating year, a person close to the firm told BI.

The person said Mudrick Capital made 31.7% for the year and ended 2024 by investing up to $50 million in the flailing British flying-taxi startup Vertical Aerospace to bail the company out.

By comparison, the average credit fund, according to Hedge Fund Research, returned less than 10% through November.