News > Hedge Funds

Regulations are killing Chinese quant funds

By NexChange
Hedge Funds

Regulations are killing Chinese quant funds

Hoping to shine post-Black Monday, mainland quant funds find out that they have nothing have dark days ahead of them.

In an effort to curb “excessive speculation” post market rout, the China Financial Futures Exchange clamped on a series of regulations back in August, including raising margin requirements on stock index futures from 30% to 40%, and restricting the opening of positions from 600 contracts to just 10 per product a day, defining anything over that as “irregular.”

Well, according to the SCMP, that didn’t work so well for the nation’s burgeoning hedge fund industry – especially for its futures-oriented quants.
“We thought a bear market would help us stand out, and actually we did, but things were turned upside down by the new regulations on stock index futures trading.”
Faced with higher expenses and limited ways in which to seek alpha – or even hedge, for that matter – hundreds of mainland quant funds have been forced to close up shop this year, while some of those still in operation have simply shifted to survival mode.

Further complicating matters is the fact that these guys are typically smaller operations, making it difficult for them to branch into different asset classes as their bread and butter dries up, as Reorient chief Brett McGonegal related to the SCMP:
“If you have only three employees in your firm, how can you manage to achieve a well-rounded asset class allocation and develop effective risk management platforms?”
With regulators desperately clinging to whatever shred of credibility they have left, there just seems to be no way for the industry to get back to its feet.

After every hardship comes ease though, so whoever’s cutting his teeth in this twilight of the quants is sure to be a monster. Let’s see who does.
Photo credit: JERRYANG

Subscribe to our Newsletter

Be one of the first to experience the future of financial services