After sailing through most of the year returning over 45% to investors, Baring Asset Management’s China Absolute Return Fund hit a snag last month.The $67.7 million long/short equity fund dropped 11.34% in November, its biggest decline this year, bringing its YTD returns to 38.45%.

In their monthly investor letter, Portfolio managers Khiem Do and Adrian Au attributed the fund’s “unprecedented” decline to external factors such as the U.S. subprime mess; investment banks close to fiscal year end; comments from Premier Wen Jiabao that the pilot scheme for qualified domestic institutional investors of retail investors to invest overseas was not ready; and unfavorable stock selection in the fund.

“The market declined the most in the first week of November by around 10%,” they wrote. “Unlike the month of August, when we saw a meaningful subsequent recovery, the markets remained volatile for most of the month. This made it difficult to recoup the loss via trading tactics to capture either the upside or downside. The sharp sell down on high alpha holdings within our portfolio also caught us by surprise, despite their solid fundamentals as some investors were exiting the market at any cost.”

As a result, the pairs said they lowered the net long position for the fund from 80% to below 30%, while still maintaining the gross exposure at around 120%.

Baring’s China Fund began trading in July 2004 and returned 55.6% last year.