A Tale of Two Extremes! The billion-dollar quantification camp expands to 61 firms! Why is the collective pressure on excess returns?

In Q1 2026, for China’s quantitative private fund industry, it can be said to be “a mix of ice and fire.”

On the one hand, assets under management (AUM) surged again, expanding the “billion-yuan” quant camp to 61 firms, continuously setting new historical records, with the industry’s overall AUM reaching a record high near 2 trillion yuan; on the other hand, excess returns cooled off abruptly. Amid global financial turmoil triggered by conflicts in the Middle East, quant models that once “turned stone into gold” are facing a double test of mean reversion and strategy crowding, and some institutions have already seen negative excess returns or even losses within the year.

The divergence between scale and performance is pushing this most capital-favored track into a new round of differentiation.

**The “billion-yuan camp” expands to 61 firms, and the head-end effect becomes more pronounced **

According to the latest statistics from QIML, as of the end of Q1, the number of domestic quant private funds with AUM above 20k yuan had increased to 61, up 9 from the end of 2025. The industry’s overall AUM, conservatively estimated, has surpassed 1.8 trillion yuan—up nearly 400 billion yuan from the end of the previous quarter, and up about 800 billion yuan year-on-year.

Among them, in Q1 there were 8 new quant private funds that entered the “billion-yuan club”: Ban Ying Private Fund, Hongxi Fund, Liang Kui Private Fund, Luo Shu Investment, Ming Xi Capital, Shen Yi Investment, Totte Investment, and Youmei Li Investment. The continued influx of new forces further raises the industry’s overall scale ceiling.

From a structural perspective, the tiering of quant private funds is becoming clearer: Moyang Quant, Jin Ge Quant, Nuoda Investment, and Micro-Innovation Ease have moved into the 15 billion–20 billion yuan range; Mengxi Investment, Nian Kong Nian Jue, Turing Fund, Zhengding Private Fund, and Zhuo Shi Fund have entered the 20 billion–30 billion yuan range; Evolution Theory Asset has entered the 30 billion–40 billion yuan range; Maoyuan Quant and Tianyan Asset have reached the 40 billion–50 billion yuan range; Blackwing Asset and Wanyan Asset have moved into the 50 billion–60 billion yuan range; Chengqi Fund has entered the 60 billion–70 billion yuan tier;

Among them, the “Four Quant Titans”—Fangfang Quant, Jiukong Investment, Ming Yuan Investment, and Yanfu Investment—saw their scale rise again, already crossing into the 80 billion–90 billion yuan range, further consolidating head-end advantages.

In addition, some institutions achieved “step-up” growth: Qianxiang Investment and Zhengying Asset rose by two levels to the 20 billion–30 billion yuan range; Pingfanghe Investment jumped to the 30 billion–40 billion yuan range; and Longqi Technology and Mingshi Fund even crossed multiple tiers, rapidly entering the 50 billion yuan-level camp.

It is worth noting that the number of quant institutions with scale exceeding 50 billion yuan has now reached 12, doubling from the same period last year. As industry concentration continues to rise, the Matthew effect becomes increasingly obvious.

The rapid expansion of quant private fund scale is driven by multiple factors converging. On the one hand, in recent years, quant strategies have attracted strong interest by delivering relatively stable excess returns during volatile markets, continuously winning the favor of bank wealth management products, broker asset management businesses, 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 replicate and promote them quickly, thereby providing a solid foundation for scale expansion.

In addition, improvements in AI technology and computing power, to a certain extent, have strengthened the investment research capabilities of quant institutions, further attracting incremental capital to enter. Especially against the backdrop of increased volatility in active equity positions, some capital is more inclined toward the stability of quant strategies, pushing the industry’s scale to swell further.

**Excess return pullbacks bring quant performance under challenge **

Sharp contrast to the rapid surge in scale is that in Q1 the performance of quant private funds has faced clear pressure.

Since March, affected by the escalation of Middle East developments, global financial markets have been extremely volatile. U.S. stocks and U.S. Treasuries have both fallen sharply, and the Korean stock market even triggered a trading halt; A-shares have also been unable to stay out of the turmoil. Data show that in March, the CSI 500, CSI 1000, and CSI 2000 index registered declines of 12.02%, 10.99%, and 10.70%, respectively.

Against this backdrop, quant private funds’ core products—index enhancement strategies (index-enhancement, “Zhi Zeng”)—saw clear pullbacks. According to data obtained by a reporter from Securities Times China through multiple channels, in March most of the index-enhanced and “air index-enhanced” products from leading quant private funds saw losses concentrated in the range of 9% to 12%.

More severe is that within the year, the excess returns of quant products have shown clear differentiation. Some institutions’ products not only failed to outperform their benchmarks, but also posted negative excess returns, and even began to erode absolute returns. Quant strategies that once touted “stable excess returns” are undergoing a relatively rare round of systematic stress testing.

For the excess-return pullback in this round, multiple industry insiders have provided different explanations.

Fang Ming, deputy general manager of Zhengren Quant, said that in the first three quarters of last year the market had relatively obvious style returns, allowing quant strategies to capture related factor returns relatively well. However, in 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, pointed out that first, in terms of the current situation, the performance of different index-enhanced products actually differs significantly. The excess returns of index-enhanced products such as CSI 1000 and CSI 2000 have remained relatively stable and rich. The main source of phased challenges is actually CSI 500 index-enhanced strategies. In the past, obtaining excess returns relative to the CSI 300 was relatively difficult; now, the difficulty of enhancing CSI 500 has also clearly increased. Last year, within the industry, CSI 500 index-enhanced strategies achieving about 10% excess return were already considered relatively strong.

“Behind this are several reasons, including that the CSI 500 has a limited number of constituent stocks, 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, participants in the related strategies are the most concentrated, leading to strategy crowding. By comparison, CSI 1000 and CSI 2000 have more constituent stocks, providing a wider stock-picking space and lower strategy crowding—therefore it is easier to capture continuous and substantial excess returns. It’s possible for excellent products to achieve annual excess returns above 20%,” Wang Xiong said.

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

At the same time, the “crowded trading” problem is becoming increasingly prominent. With the industry’s scale expanding quickly, large amounts of capital have poured into similar strategies and factor models, causing trading signals to converge and compressing the space for returns. Once the market experiences sharp volatility, concentrated rebalancing can amplify trading costs and further erode excess returns.

Some insiders at leading quant institutions acknowledge: “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 how they form expectations for the returns of index-enhanced products. The fundamental goal of these products is to strive to deliver a relatively deterministic excess return over the benchmark index over the long term, but pullbacks over the short term are very normal market phenomena.

Index enhancement does not necessarily pursue beating the index every week or every month; its value is more reflected in its long-term capacity for excess returns across market cycles. Therefore, taking a rational view of short-term fluctuations and focusing on the excess return compounding brought by long-term holding may be a more mature investment mindset.

**The industry enters a new stage, moving from a scale race to a capability contest **

It is worth noting that quant private funds are currently standing at a new crossroads. On the one hand, scale expansion is still ongoing, and the industry ceiling keeps getting raised; on the other hand, the difficulty of generating excess returns has increased significantly, and the effectiveness of strategies faces challenges.

A responsible person at a quant institution in Shenzhen said that future industry competition will shift from a simple race of scale to a deeper contest of capabilities, including factor discovery and model iteration ability, trade execution and impact cost control, multi-strategy and multi-asset allocation capability, as well as risk control systems and drawdown management.

“During this process, leading institutions may continue to consolidate their leading position thanks to their technological accumulation and resource advantages; but if small and mid-sized institutions lack differentiated capabilities, they may gradually be cleared out in the ‘involution.’” The aforementioned responsible person at the quant institution said.

Besides the “index-enhancement strategy” itself, the investment value of the “benchmark index” is also very critical. Currently, some attempts have already emerged to enhance new types of indices such as the A500 and dividend/quality indices, but most still use existing publicly available indices as anchors.

Wang Xiong believes that as quant asset managers, one can go a step further. Not only enhancing existing indices, but also leveraging scientific fundamental research and artificial intelligence technology to participate in “creating high-quality indices that better represent future economic development directions.” This is itself a practice advocating long-term and value-based investing.

In Wang Xiong’s view, by combining deep fundamental research with artificial intelligence, one can build index series that more strongly represent the development direction of “new quality productive forces,” such as the “Siyuan New Quality 500 Index,” and indices focusing on sub-sectors like new energy, advanced manufacturing, information technology, new consumption, and healthcare/pharmaceuticals.

“Such a ‘high-quality index + quant enhancement’ dual-layer model helps, on one hand, alleviate the problem of excessive crowding of industry strategies on a small number of traditional indices; on the other hand, it allows investments to be even more closely aligned with the long-term direction of economic transformation and industrial upgrading.” Wang Xiong said.

(From: Securities Times China)