LONDON (Reuters) - Hedge funds betting Qualcomm QCOM.O would succeed in a $44 billion bid for NXP Semiconductors NXPI.O face steep losses after the deal fell through - taking the shine off a strong start to the year for many funds.

Qualcomm, the world’s biggest maker of chips for mobile phones, called off the deal on Thursday after the Chinese regulator failed to approve it by a Wednesday deadline.

Many funds bought into NXP months ago at an average of around $115 a share, well below the $127.5 a share offer price, a trader at a major investment bank told Reuters, but rising U.S. China trade tensions caused a steady slide in the value of the target.

After closing at $98.37 on Wednesday, ahead of the deadline, shares in NXP were down more than 7 percent early on Thursday. From Wednesday’s close to Thursday, the estimated paper loss based on the share price movement would be more than $700 million, based on available Thomson Reuters data.

“It’s a significant hit but it’s always more palatable for risk-arbitrage to lose money as a slow bleed,” said the trader at the bank. “The struggle is when you come in and the stock is down 30 percent in one day.”

Which funds held what position at when the deal was called off on Wednesday is hard to determine as U.S. securities filings data has a long lag. It is also impossible to show using publicly available data when they bought and sold, to determine precise losses.

The most recent Thomson Reuters data, however, showed hedge funds made up seven of the top 10 shareholders in NXP, and collectively they held more than 35 percent of its shares.

“A lot of hedge funds are involved in NXP-Qualcomm. We have about five to 10 event-driven managers involved in the trade,” said Ben Watson, senior investment manager, alternatives at Aberdeen Standard Investments.

Three of the seven hedge funds among the top-10 investors cut exposure to NXP ahead of Wednesday, including Soroban Capital Partners, Och-Ziff Capital Management and Pentwater Capital Management, Thomson Reuters data showed.

All of these funds declined to comment to Reuters.

“We cut our position from near-10 percent of our portfolio in February down to under 5 percent,” said a trader at one of the top-30 hedge funds with a position in NXP.

The losses marred what has been an otherwise strong start to the year for ‘event-driven’ funds that specialize in trading around deals.

Up 2.26 percent in the first half of 2018, the average fund outperformed average industry returns of 0.79 percent, industry tracker Hedge Fund Research showed.

One of the star contributors to portfolio performance has been Sky SKYB.L, up 52 percent this year as Comcast Corp CMCSA.O and Walt Disney Co DIS.N compete to buy the company.

Also, a number of other China-U.S. deals had successfully completed or were expected to complete which has helped performance, investors said.

Among them were Marvell Technology MRVL.O, which announced it had acquired Cavium on July 6, and Microchip Technology MCHP.O, whose takeover of Microsemi Corp was finalised May 29.

Investors and analysts also pointed to reasons for funds not to sell out of NXP completely.

As a result of cancelling the deal, Qualcomm paid a $2 billion breakup fee to NXP - a fact that should help bolster the share price - while NXP also launched a share buy-back. Olivetree analysts suggested NXP could now hit a standalone price of $120 a share.