Topic: Quantitative Funds in China – the Heated Subject
Author: InvesTAO Research
Summary
- China’s equity-focused funds have seen a dramatic expansion in 2021, especially in the private funds (or Alternative Investment Funds, “AIFs”) sector. The overall size of liquid AIFs has grown to CNY4.9tn (US$754bn), which is a 32% growth compared to that of 6 months ago.
- The robust growth for AIFs in the last 6 months was largely contributed by China’s quantitative funds, which at the moment is dominated by the AIF managers. They have generated a +38% growth in AUM in 6 months, while the total AUM of Chinese quantitative funds has grown to $200bn.
- Our assumption that quant funds in China are outperforming with a significant margin is supported by a technical analysis: higher average returns compared to indices, and high Sharpe ratios and Calmar ratios for all sub-groups – Sharpe ratios range from 0.78 to 0.98, while the maximum from benchmarks is 0.71.
- Despite the regulatory concerns, the new interest in the long/short capability and a larger range of available stock selection boosted the coverage of QFII licensing including global quant giants. Local quant leaders are actively engaging with overseas investors, but miscommunication still stands as one of the major issues.