Recently, the magic square of 100 billion quantitative private placement apologized to investors for its significant retreat in performance. For a long time, the contradiction between scale and performance has been the focus in the investment field. In 2021, when the performance of quantitative private placement is brilliant, many quantitative private placement still take the initiative to announce “closing”. Quantitative private placement has “broken halberd” near the scale of 100 billion, which has also triggered the market discussion on the “ceiling” of management scale. Industry insiders believe that the capacity of any quantitative strategy has its upper limit. The larger the management scale, the higher the management difficulty. However, we still need to look at the “ceiling” problem from a dynamic perspective. With the companies strengthening their investment and layout in talent, data, technology and fundamental research, we can still expect a breakthrough in management scale.
performance fallback
On December 27, 2021, magic square quantified that an executive of the company apologized to investors in the circle of friends for performance withdrawal. On the evening of December 28, magic square quantitatively released the statement on the recent performance of magic square, which said that the recent performance retreat of magic square reached the historical maximum, which was deeply guilty. Magic square quantifies that the return of most investors in magic square is still positive in 2021, but this return is unqualified relative to the increase of the index. In addition, some customers, especially hedging customers, suffered floating losses. Magic square is very sorry for this.
As of the closing on December 27 last year, since 2021, the CSI 500 index has increased by 14.22% and the CSI 1000 index has increased by 17.00%. According to the third-party platform data, the yield of magic square’s CSI 500 index products as of December 24 since 2021 is about 12%, and that of CSI 1000 index products is about 16%. In addition, some new products established by magic square in 2021 are still at a loss.
In addition to magic square, since the second half of 2021, many quantitative private placements have experienced performance pullback.
Chen Lei (a pseudonym), a head quantitative private placement person, said that the two sharp pullbacks in the second half of 2021 were mainly caused by changes in trading volume and market style. He said that since September, there have been two stages of performance pullback in the quantitative market. In mid September, the sharp change of short-term style led to excess pullback, which occurred every year in history, which was also expected by the quantitative model. At the beginning of November, heavyweights with large early decline and good performance fell sharply, which is behind the short-term pulse impact brought by capital. In the medium term, after these two rounds of risk release, there is a lot of room for imagination in the new round of market.
contradiction between scale and performance
Insiders said that the sharp expansion of scale since 2020 is the main reason for the decline of magic square’s performance.
For a long time, the contradiction between scale and performance has been the focus of attention in the investment field, and quantitative private placement is well aware of the truth. “In such a scale, some quantitative private placement strategies and algorithms can’t run, let alone have a yield of 8% to 10%. Quantitative strategies are easy to converge.” Chen Lei said.
“The excess return will be diluted in the future. Both investors and participants should have such expectations. The excess return must be downward. Especially after the formal implementation of the new asset management regulations, bank financial funds will enter the market.” A quantitative person said that from the perspective of analyzing excess returns, the current excess return range of the quantitative industry in the United States is 3% – 5%, and China’s quantitative excess return far exceeds this range. But in the long run, China’s quantitative excess return will certainly be gradually diluted.
Chen Lei said that the scale and capacity of the quantitative strategy depends on three factors: first, the capacity of the trading variety itself. The more investment targets are available, the better the liquidity and the greater the capacity; Second, the research level of strategy and the application ability of technology. The longer the accumulation, the capacity will gradually increase; Third, investors’ understanding and expectation of strategy. The less customers’ understanding, the higher expectation, the weaker risk tolerance, and the smaller the scale that institutions can stably retain.
“The market pays more attention to the past performance of quantitative products and does not fully understand the competitiveness of quantitative private placement. Therefore, quantitative institutions have certain reservations about scale raising.” Chen Lei said that because of this, in 2021, when quantitative private placement performed well, many quantitative private placement still announced “closing”.
100 billion scale or no top
Coincidentally, in March 2021, Mingyu investment, which was rumored to have exceeded 100 billion yuan, also publicly apologized for the sharp withdrawal of its net value. The two quantitative private placements have successively failed in the scale of 100 billion, which has also triggered the market discussion on the “ceiling” of the management scale of a single quantitative private placement manager. Has the scale of 100 billion reached the top?
Li Ming (a pseudonym), a senior quantitative person, said that from past experience, the capacity of any quantitative strategy has its upper limit. The larger the management scale of quantitative private placement, the higher the management difficulty. Once the pure excess return strategy can not cover all shares, quantitative private placement managers will generally choose passive style exposure to make up for returns. The quantitative strategy of pure excess return needs to continuously improve R & D capacity, and the cost is very high. However, the cost of style exposure is low, and the performance is very outstanding under the appropriate market style. However, once the market style changes, institutions with exposed style will face greater withdrawal risk.
However, another quantitative private placement person believes that the upper limit of management scale is the result of dynamic changes. A few years ago, we would not have thought that the scale of a quantitative private placement could break through 100 billion yuan so quickly. The scale ceiling still depends on the ability of private placement managers and their cooperation with the market environment. With the efforts of head institutions in R & D, it is not impossible to have institutions with a scale of more than 100 billion yuan in the future.
Chen Lei said that in the future, the scale growth of the quantitative industry will slow down and stabilize, and the factors driving the quantitative scale growth will turn to the accumulation of internal investment and research capacity. From the current quantitative private placement, we can clearly see the trend by strengthening the investment and layout of talent, data, technology and fundamental research. Thanks to the breakthrough progress and inclusive application of AI and big data technology, the investment scale of quantitative industry in the United States and even the whole financial industry (based on data and technology empowerment research) and the proportion of the whole asset management industry have increased greatly in the past 10 years. At present, most of the asset management institutions with the largest management scale in the world directly or partially adopt quantitative investment strategies. With the continuous development of the A-share market and the continuous improvement of China’s competitiveness in the field of AI technology, the scale growth of the investment model driven by new technology is expected to have more room in the future.
(China Securities Journal)
