SHANGHAI/SINGAPORE, March 14 (Reuters) – The $10 trillion Chinese fund management industry is undergoing a significant transformation as the country’s hedge funds aggressively embrace artificial intelligence. Driven by the success of AI-driven trading, firms are racing to integrate these technologies into their investment strategies, attracting both investment and attention.
This trend was initially propelled by High-Flyer, a Chinese quant fund that implemented AI in its multi-billion dollar portfolio. High-Flyer also established DeepSeek, an AI startup that has produced a cost-effective large language model. This has made waves in the AI scene, even causing ripples in Silicon Valley and challenging the conventional dominance of Western AI technology.
Following High-Flyer’s lead, other Chinese hedge funds are increasing their AI research efforts. These include Baiont Quant, Wizard Quant, and Mingshi Investment Management. Simultaneously, numerous mutual fund companies are also looking to incorporate DeepSeek into their investment processes.
“We are in the eye of the storm” of an AI revolution, said Feng Ji, the chief executive of Baiont Quant, which relies on machine learning for its trading activities, without human intervention. “Two years ago, many fund managers would look at us AI-powered quants with mockery or disbelief,” Feng said, further commenting that “Today, these skeptics could be out of business if they don’t embrace AI.”
Most of these funds leverage AI for processing market data and generating trading signals, aligned with their investors’ risk profiles. Competition for “alpha”, or outperformance, is expected to intensify as domestic firms become more similar to established U.S. systematic trading firms such as Renaissance Technologies and D.E. Shaw. Wizard Quant recently advertised for AI researchers and engineers to join its lab, aimed to “reshape the future of science and technology.” Mingshi’s Genesis AI Lab is actively recruiting computer scientists in support of research and investments due to the increased demand. In a roadshow, UBI Quant, another asset manager, mentioned its earlier establishment of an AI lab to explore the use of AI in investment strategies.
The pursuit of AI-enhanced trading strategies demands significant computing power and high-performance chips. Local governments are showing support for this, with Shenzhen, in particular, planning on providing 4.5 billion yuan ($620.75 million) in subsidies to hedge funds to help with computing power costs, assisting their AI development.
China’s mutual fund industry is also quickly adopting AI. China Merchants Fund, E Fund and Dacheng Fund are among the retail fund companies that have finished deploying DeepSeek locally. The open-sourced, low-cost language model has “greatly lowered the bar for AI applications” for the mutual fund industry, according to Hu Yi, vice general manager of intelligent equity investment at Zheshang Fund Management. Zheshang Fund’s AI platform is also utilizing DeepSeek to develop AI agents in order to improve research and investment efficiency.
These AI agents will potentially take on the tasks of junior analysts, such as monitoring market signals and creating daily investment commentary, “forcing humans to do more creative things,” as Hu put it. “Before DeepSeek, AI had mostly been the realm of top tier players given the cost, talent, and technology required” but DeepSeek had “levelled the playing ground for Chinese fund managers, which are smaller than their U.S. counterparts,” said Larry Cao, a Principal Analyst at FinAI Research.
Feng from Baiont highlighted that advancements in AI offer new investment management companies the opportunity to challenge the larger, more established companies. “A seasoned fund manager may have accumulated 20 years of experience, but with AI, one can acquire that experience in two months using 1,000 GPUs,” Feng commented. Baiont’s five-year-old fund company, managing 6 billion yuan, has exceeded the performance of many older firms.
($1 = 7.2493 Chinese yuan renminbi)
Reporting by Samuel Shen in Shanghai and Vidya Ranganathan in Singapore; Editing by Christopher Cushing
