Chinese quantitative hedge funds suffered heavy losses in July, as stocks related to artificial intelligence plummeted, causing the returns of some funds to turn negative for the year, while others performed only slightly better than stock benchmark indices. Among them, nine products managed by the hedge fund under Liang Wenfeng, founder of Chinese AI firm DeepSeek and tracked by the data agency, each posted a drop of over 20% last month.
According to statistics from Shanghai Chaoyang Yongxu Information Technology Co., China’s pure long-only quant funds lost an average of 17% last month. Of the 1,300-plus products tracked by the agency, only 4% posted positive returns.
Data shows that among the nine products managed by Liang Wenfeng's hedge fund and tracked by the agency, each posted a decline of over 20% last month. So far, all but one of these products have posted losses for the year; the only fund still showing positive returns has gained a mere 0.04% year-to-date.
Bloomberg analyzed on Friday (August 7) that these figures reflect a broad impact on Chinese quant funds from last month’s global AI stock crash. This sell-off once drove US firm Situational Awareness into trouble and led to losses at numerous hedge funds worldwide. As investors scrambled to sell off stocks, China’s CSI 1000 Index dropped nearly 20%.
The quant fund industry in China had seen years of rapid growth prior to this “trial moment”. As index-enhancement strategies became a popular asset allocation option for wealthy Chinese investors, the total assets under management in the quant fund sector have surpassed 2.6 trillion yuan (1.58 billion ringgit).
The performance of such strategies is typically measured by the alpha they generate—that is, the degree to which fund managers’ returns exceed those of the benchmark index. However, for many Chinese quant funds, the sharp declines in July essentially wiped out all excess returns accumulated so far this year.
This also raises the question of whether the newest investors in this field—those who entered recently—will choose to remain in the face of such intense market volatility.
Li Yi, senior sales manager at Shenzhen Jinfuzi Fund Sales Co., a private fund distribution agency, noted that while quant funds attracted much of the industry’s capital flows in the first half of this year, investor skepticism quickly returns once excess returns narrow or even turn negative.
He said that seasoned clients are relatively calm, as they have experienced similar situations in the past, but newly entered investors are becoming increasingly anxious.