China’s quant hedge funds suffer heavy losses in H1 ’24

China’s burgeoning quant hedge fund industry encountered a significant setback in the first half of 2024, with funds experiencing losses that outpaced traditional stock strategies.

The underperformance has triggered a reshuffle within the $200 billion industry, prompting some funds to exit the market altogether.

Quant hedge funds, which rely heavily on computer algorithms and leverage, have been under increasing regulatory scrutiny as Chinese authorities aim to protect retail investors.

These funds delivered impressive returns in previous years, particularly through bets on small-cap stocks. However, the market turmoil in February, dubbed the “quant quake,” and subsequent regulatory crackdowns severely impacted their performance.

On average, quant hedge funds investing in China’s A-shares suffered an 8.6 per cent loss in the first half of 2024, a stark contrast to their 3.2 per cent gain for the entire 2023.

Funds focused on the small-cap CSI 1000 Index fared even worse, with a 14 per cent decline. In comparison, onshore equity hedge funds experienced a more modest three per cent loss.

The number of quant hedge funds managing over 10 billion yuan ($1.37 billion) in assets dwindled from 32 at the end of 2023 to 30 by June 2024, according to PaiPaiWang Investment and Management data.

Attribution: Reuters