China Slows Quant Hedge Fund Approvals as Trades Scrutinized
(Bloomberg) -- China is tightening approvals for quantitative hedge funds in the latest sign that officials are concerned about the potential market impact of trading driven by algorithms after a year of rapid asset expansion.
The Asset Management Association of China, which approves registration of new quant funds, closed a fast-track channel in recent weeks for at least some managers, according to people with knowledge of the matter, who asked not to be named discussing private information. The association has also rejected applications that use token amounts to launch new offerings, the people said.
While the regular channel for approvals remains open, it involves closer inspection, suggesting a slowdown in launches by quant funds after a roughly five-fold increase in assets to $219 billion over the past two years.
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In recent months, authorities held discussions with top funds about the potential impact of computer-driven trading in the market. Quantitative and high-frequency trading can easily cause issues like increased volatility and unfairness, China Securities Regulatory Commission Chairman Yi Huiman said in September.
Regulators didn’t request any curbs on fund size or trading frequency, Bloomberg reported at the time. The subsequent restricting of accelerated product approvals hints at growing caution among officials.
The fast-track offered same-day product registration for firms that AMAC deems to be better managed and more compliant, allowing them to quickly roll out new offerings to support their growth. Standard quant fund registrations are still being accepted as usual, the people said.
Beijing-based AMAC, which is overseen by the CSRC and oversees registration of all private funds, didn’t immediately reply to an emailed request for comment.
The combined assets at private quant firms now total about 1.4 trillion yuan, according to Citic Securities Co.
The rapid expansion has stretched some managers’ trading models. Zhejiang High-Flyer Asset Management, one of the largest quant hedge funds in China, stopped taking new money after a 30 billion yuan surge in assets this year strained its capacity to keep returns stable.
New products at top private quant firms have slumped this month, according to Shanghai Suntime Information Technology Co. Lingjun Investment, which managed about $7.7 billion in September, registered only 11 through Nov. 18, compared to 97 in August. At Shanghai Minghong Investment Co., which managed $8.5 billion in China as of the same month, offerings dropped to 6 from 96, the data showed.
AMAC earlier this month asked private quant funds to start submitting monthly data on size, overseas affiliates and trading strategies, local media reported. The Securities Association of China also requested brokerages to submit quant trading data from both their proprietary and asset management operations, according to the reports.
The fast-track channel for other actively-managed hedge funds remains unaffected, the people said.
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