Bloomberg: China’s quants are “latecomers” to tech and algos, but have home advantage
China’s quants are benefiting from being “latecomers,” borrowing technologies and algorithm models from abroad, according to UBS Asset Management Hedge Fund Solutions. While they may lack years of trading experience and often have less robust research and investment systems, they compensate with on-the-ground knowledge that foreign peers need time to gain, said Xia Kun, who’s responsible for fund of hedge fund management for UBS’s China private fund management business.
Minghong and High-Flyer have distinguished themselves from the close to 9,000 hedge funds vying for investor attention in China. Those ranks have been swelled since 2016 by global stalwarts including Millburn Ridgefield, Winton Group and Man Group, all craving a share of the 2.6 trillion yuan private securities funds market as clients in developed countries shift toward low-fee investments.
Even in this crowded field, quant trading is at a nascent stage, said Qiu Huiming, who worked for Millennium Management and HAP Capital Advisors in the US before returning to start Minghong in 2014. Funds like his manage only 250 billion yuan, he estimates, while the market can absorb more than a trillion yuan in high-frequency plays and five times that in strategies that rely on fundamentals and hold long-term positions.
Fund managers agree that local talent is paramount but challenging to attract. For the past 24 months, High-Flyer has been trying to recruit deep-learning scientists by offering salaries of as much as 2 million yuan. That sort of pay would rank among the top 20% best offers in the market, according to Beijing HeraldPartners (sic) Consulting. But filling the positions has been slow given the competition from tech giants like Tencent and Alibaba.
The answer for some international funds is joint ventures rather than the usual track of setting up as wholly foreign-owned private fund managers. New York-based Millburn Ridgefield’s Chinese partner has been critical in building a local team, according to co-CEO Barry Goodman. Shanghai-based Quadrant Asset Management helped it find high-quality vendors to source “good, clean data” and understand the intricacies of execution, Goodman said. Although the nearly 50-year-old hedge fund has been using machine learning since 2013, he added that “we felt like it was really important to approach the China market with a great deal of humility.”
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