A Tale of Two Extremes! 61 firms, expanding the hundred-billion quant fund camp! Why are collective excess returns under pressure?

In Q1 2026, for China’s quant private fund industry, it can be described as “a tale of two extremes.”

On the one hand, assets under management surged again, expanding the “billion-yuan” quant camp to 61 firms, continuously setting new historical highs, with the industry’s overall AUM approaching an all-time high of nearly RMB 2 trillion; on the other hand, excess returns cooled off sharply. Amid global financial market turbulence triggered by the Middle East conflict, quant models that once turned “stone into gold” are now facing the dual tests of mean reversion and strategy crowding, and some institutions have already recorded negative excess returns or even losses within the year.

The divergence between scale and performance is pushing this track—one of the most sought-after by capital—into a new round of differentiation.

The number of firms in the billion-yuan camp expands to 61, and the head effect becomes more pronounced

The latest statistics from QIML show that, as of the end of Q1, the number of domestic quant private funds with AUM above RMB 20k has increased to 61, up by 9 from the end of 2025. Conservatively estimated, the industry’s overall AUM has already surpassed RMB 1.8 trillion, up nearly RMB 400 billion from the end of the previous quarter, and up by about RMB 800 billion year over year.

Of these, in Q1 there were 8 quant private funds newly joining the “billion-yuan club”: Ban Yang Quant, Hong Xi Fund, Liang Kui Quant, Luo Shu Investment, Ming Xi Capital, Shen Yi Investment, Tott Investment, and You Mei Li Investment. The continued influx of new forces further lifts the industry’s overall scale ceiling.

From a structural perspective, the tiering of quant private funds is becoming clearer. Many firms, including Beyang Quant, Jin Ge Quant, Nuoda Investment, and MicroKea Yi, have entered the RMB 15 billion–RMB 20 billion range. Mengxi Investment, Nian Kong Nian Jue, Turing Fund, Zhengding Private Fund, and Zhuoshi Fund have moved into the RMB 20 billion–RMB 30 billion tier; Evolution Theory Asset Management has entered the RMB 30 billion–RMB 40 billion band; Maoyuan Quant and Tianyan Capital have stood on the RMB 40 billion–RMB 50 billion step; Blackwing Asset and Wanyan Asset have crossed into the RMB 50 billion–RMB 60 billion tier; and Chengqi Fund has entered the RMB 60 billion–RMB 70 billion tier.

Meanwhile, the “four major giants” in quant—Fangfang Quant, Jiu Kun Investment, Ming Wen Investment, and Yan Fu Investment—have once again seen their scale rise, already moving into the RMB 80 billion–RMB 90 billion range, further consolidating their advantages at the top.

In addition, some institutions have achieved “jump-step” growth. Qianxiang Investment and Zhengying Asset both climbed two levels into the RMB 20 billion–RMB 30 billion range; Pingfanghe Investment rose to the RMB 30 billion–RMB 40 billion tier. Longqi Technology and Mingshi Fund even jumped multiple rungs, quickly entering the RMB 50 billion-scale camp.

It is worth noting that the number of quant firms with AUM exceeding RMB 50 billion has reached 12, doubling compared with the same period last year. Industry concentration continues to rise, and the Matthew effect is becoming more obvious.

The rapid expansion of quant private fund scale is inseparable from the resonance of multiple factors. On the one hand, in recent years quant strategies, thanks to relatively stable excess returns, have shown strong appeal in choppy markets, continuing to win favor from bank wealth management products, broker asset management firms, and high-net-worth clients. On the other hand, products such as index enhancement and market-neutral strategies have a high degree of standardization, making it easier for channels to quickly replicate and promote them—providing a solid foundation for scale growth.

In addition, improvements in AI technology and computing power have also, to some extent, strengthened the investment research and portfolio research capabilities of quant institutions, further attracting incremental capital. Especially in a backdrop where volatility in active equities has increased, some capital favors the stability of quant strategies more, driving the industry’s scale even further upward.

Excess return drawdowns—quant performance faces a test

In sharp contrast to the surge in scale, quant private fund performance in Q1 faced clear pressure.

Since March, under the impact of an escalation of the Middle East situation, global financial markets have been in violent turmoil. U.S. stocks and U.S. Treasuries saw significant declines, and the Korean stock market even triggered a trading halt mechanism; A-shares also could not stay unaffected. Data show that in March, the declines for the CSI 500, CSI 1000, and CSI 2000 indexes were 12.02%, 10.99%, and 10.70%, respectively.

Against this backdrop, the industry’s core quant product—index enhancement strategies (“index enhancement,” or “zhi zeng”)—suffered a clear drawdown. According to data obtained by a reporter from Securities Times China through multiple channels, in March most of the major quant funds’ index enhancement and “air index enhancement” products saw losses concentrated in the 9% to 12% range.

More severely, within the year, excess returns of quant products showed marked differentiation. Some institutions’ products not only failed to outperform their benchmarks, but instead recorded negative excess returns, even starting to erode absolute returns. Quant strategies that once sold “stable excess returns” are undergoing a relatively rare systemic stress test.

For this round of quant excess return drawdowns, multiple industry insiders have offered different perspectives.

Fang Ming, Deputy General Manager of Zhengren Quant, said that in the market during the first three quarters of last year there were relatively significant style returns. Quant strategies could capture related factor returns well; but over the past two quarters, the market has shown a clear mean reversion, causing the decay of the original factor returns and leading to a decline in strategy performance.

Wang Xiong, Chief Investment Officer of Siyuan Quant Investment, noted that first, in terms of the current situation, there are actually significant differences in the performance of different index enhancement products. Excess returns of index enhancement products such as CSI 1000 and CSI 2000 remain relatively stable and substantial. The main challenge at the stage level has truly emerged with CSI 500 index enhancement. Previously, getting excess returns relative to the CSI 300 was relatively difficult; now, the difficulty of enhancing the CSI 500 has also increased noticeably. Last year, excess returns of CSI 500 index enhancement in the industry could reach around 10%, which is already a relatively strong level.

“As for why this is the case, it mainly comes down to several factors: the number of constituent stocks of CSI 500 is limited, so the stock-picking space is relatively narrow, and the impact of any single constituent stock on overall excess returns is larger. At the same time, the participants in related strategies are the most concentrated, which leads to strategy crowding. By comparison, CSI 1000 and CSI 2000 have more constituent stocks and a wider stock-picking space, resulting in lower strategy crowding. Therefore, it’s easier to capture continuous and substantial excess returns, and it’s possible for excellent products to achieve annual excess returns of 20% or more,” Wang Xiong said.

Regarding how to respond to the decay of excess returns, Fang Ming believes that “quant institutions either stick to their style, highlighting their own traits and value, or choose a balanced style to improve the stability of excess returns.”

At the same time, the “crowded trading” issue has become increasingly prominent. As the industry’s scale expands rapidly, large amounts of capital flood into similar strategies and factor models, causing trading signals to converge and compressing the space for returns. Once the market experiences sharp volatility, centralized rebalancing is likely to amplify trading costs and further erode excess returns.

Some insiders at leading quant institutions frankly admitted: “When more and more capital is doing similar things, ‘alpha’ itself gets diluted.”

In addition, Wang Xiong believes that investors may need to gradually adjust their expectations for how index enhancement products deliver returns. The fundamental goal of these products is to strive to provide deterministic excess returns that outperform the benchmark index over the long run. But it is very normal for the market to experience stage-level drawdowns in the short term.

Index enhancement does not aim to beat the index every week or every month; its value is more reflected in its long-term ability to generate excess returns across market cycles. Therefore, taking a rational view of short-term volatility and focusing on excess return compounding from long-term holding may be a more mature investment mindset.

The industry enters a new stage, shifting from scale competition to capability comparison

It is worth noting that China’s quant private fund industry is standing at a new crossroads. On the one hand, scale expansion is still continuing, and the industry’s ceiling keeps being raised. On the other hand, the difficulty of obtaining excess returns has increased significantly, and the effectiveness of strategies faces challenges.

A负责人 at a quant institution in Shenzhen said that in the future, competition in the industry will shift from simple scale comparison to deeper capability competition, including factor research and model iteration capabilities, trading execution and impact-cost control, multi-strategy and multi-asset allocation capabilities, as well as risk-control systems and drawdown management levels.

“In this process, leading institutions may continue to consolidate their leading positions by leveraging technological accumulation and resource advantages; but if smaller and mid-sized institutions lack differentiated capabilities, they may gradually exit in the ‘involution’,” the aforementioned quant institution负责人 said.

Beyond the “index enhancement strategy” itself, the investment value of the “benchmark index” is also crucial. At present, some attempts have already emerged in the market to enhance indices based on new benchmarks such as A500 and dividend/quality types. However, most still use existing public indexes as the anchor.

Wang Xiong believes that as quant asset managers, one can go further: not only enhance existing indexes, but also participate in “creating high-quality indexes that better represent future directions of economic development” by leveraging scientific fundamental research and artificial intelligence technologies. This is also a practice that advocates long-term and value-oriented investing.

In Wang Xiong’s view, by combining in-depth fundamental research with AI, one can build an index series that is more focused on the development direction of “new quality productive forces,” such as the “Siyuan New Quality 500 Index,” and indices focusing on more granular themes like new energy, advanced manufacturing, information technology, new consumption, pharmaceuticals, and other sectors.

“This kind of ‘high-quality index + quant enhancement’ dual-layer model helps, on the one hand, to ease the industry’s over-crowding problem in a small number of traditional indexes; on the other hand, it can also allow investment to align more closely with the long-term directions of economic transformation and industrial upgrading,” Wang Xiong said.

[Editor-in-charge: Li Yue]

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