Actively fighting against quantification, Wall Street's hedge fund circle staged the "Battle of Yuliang"

In the domestic market, quantitative investment, which seems to have an "overwhelming" advantage, has encountered new "challenges" in the overseas hedge fund circle.

The ones making a move are traditional active hedge fund institutions, especially those engaged in equity investments.

After being on the sidelines of the mainstream market for many years, they seem to be reclaiming their "lost ground".

Meanwhile, the leading quantitative institutions are steadfastly defending their existing glory.

The two are locked in a tough battle on the hedge fund performance rankings.

Annualized Returns Exceeding 30%

According to a professional industry statistics report circulating within the industry, from 2018 to 2023, the representative products of top asset management institutions have shown significant differences in returns and risk control levels.

From a return perspective, the top performer in active investment is PanAgora Asset Management founded by Bill Ackman, with an annualized return of over 32%.

PanAgora is an active fund that integrates multiple strategies, involving equity and derivative investments, and often plays an activist shareholder role (criticizing, pushing for changes in investment companies).

It saw continuous high profits from 2004 to 2015, but experienced a long period of low strategy performance from 2015 to 2018. However, since 2018, PanAgora's fund returns have surged again, especially after 2020, relying on Ackman's precise grasp of "key events" to maintain high returns.

Although PanAgora has very high returns, it is not the highest-performing hedge fund in the past six years. The highest-performing fund is Renaissance Technologies founded by the late James Simons, which has maintained close to a 40% return over the past 5 years, and is fee-based.

Renaissance is a pioneer in the industry in pure quantitative investment (completely devoid of human decision-making) and has a long-term ceiling on returns in this field. They keep their strategies highly confidential and use various methods to retain and prevent employee turnover.

Perhaps because of this, Renaissance has a relatively lean strategy team in the industry, but with top-tier returns.

"Neck and Neck" Institutions with Many Highlights

Below the peak showdown between Renaissance Technologies and PanAgora Asset Management are four high-strategy traditional institutions.

In terms of investment schools, three quantitative institutions are challenging one active investment institution.

Among them, Ken Griffin's Citadel Fund has a return rate around 25%, ranking relatively high in performance and total returns among the four institutions. Citadel Fund was also the highest-performing hedge fund globally in 2022.

Ken Griffin, born on October 15, 1968, is an investment master and collector who is adept at using technology. He grew up in Florida in the southern United States and was a computer whiz and math club president in his youth.

While studying at Harvard University, he became fascinated with investing in his freshman year, even installing satellite antennas on the dorm roof to increase trading speed, back in the 1980s. At that time, he was obsessed with convertible bonds and options investments, making money in products that ordinary American investors couldn't understand at the time.

Later on, he excelled in the field of investment combining technology, quantitative methods, and macroeconomics that he pioneered in college. He also founded a company called Citadel Securities, which is currently the largest market maker in the U.S. stock market In addition, in the quantitative investment field, two traditional "big players" Shaw Foundation (De Shaw) and AQR Capital are also among the top hedge funds. Both of them are quantitative institutions whose performance and entrusted scale are second only to Renaissance.

The founder of Shaw Foundation is David E. Shaw, who was an assistant professor in the Computer Science Department at Columbia University in his early years. He made a fortune by using the most advanced high-speed computer networks and the inefficiencies of the financial markets.

The founder of AQR Capital is the brilliant Cliff Asness. He was born on October 17, 1966, graduated from the University of Pennsylvania with dual degrees in Computer Science and Finance.

Asness, like Simmons, is a quantitative investment master who transitioned from academia to the investment field. AQR is also one of the hedge funds in the industry that excels at turning research papers into investment strategies.

Facing these three quantitative giants is TCI Advisory, a rising active investment institution in recent years. In 2023, it made a staggering $12.9 billion for investors and shareholders, ranking it as the most profitable hedge fund globally.

The literal translation of TCI is "Children's Investment Fund Management Company" in Chinese. The current UK "Prime Minister" Sunak was also a former employee. Last year, its founder Chris Hohn paid himself a £276 million "bonus", shocking the hedge fund industry.

According to information disclosed by US regulatory agencies, as of the end of September 2023, TCI's heavily invested stocks include Google, VISA, General Electric, and Moody's.

Large Group of "Middle" Institutions

Below the top and near-top institutions, the "middle" teams of hedge funds are even larger. Moreover, subjective institutions have also clearly regained some ground.

In the active investment field, Steven Cohen's POINT72 returns are between 10-18%, similar to Buffett's Berkshire. The former is the founder of the famous investment institution SAC, while the latter is a value investment guru.

In addition, Paul Singer's Elliott Investment, which focuses on distressed assets and equity investments, also falls within this return range.

Singer, born in 1944, and the late Jim Simmons belong to the same generation. He founded Elliott Investment in 1977, making him a "veteran" fund manager in the hedge fund industry. Singer initially made his fortune in convertible bonds, but later invested heavily in a few companies and exerted influence through activist shareholderism, becoming a true "vulture investor".

One of his most famous investment cases was buying endangered sovereign debt in the 1990s, which brought him huge profits. In addition, during the century's major restructuring after the subprime crisis, he cleverly controlled a well-known auto parts company and obtained substantial subsidies from the government through a series of methods.

In recent years, Singer has faced challenges as his investments in Twitter, SoftBank, SAP, and others did not bring him significant profits, instead leading him into endless controversies In addition, this interval also includes a heavyweight institution, Baillie Gifford, which is known for its long-term investment in growth stocks and was once the hedge fund that made the most money from Tesla.

It is worth mentioning that large active investment institutions such as Fidelity, Wellington Management Company, Capital Group, and T. Rowe Price are also in this interval, which may prove that large-scale fund management can also create good performance.

Quantitative Investment "Unrivaled"

In the field of quantitative and multi-strategy, there are also quite a few players in the midsection. Of course, they cannot be compared with the absolute majority in the neck group.

Millennium is a representative quantitative investment institution in the midsection. Millennium was founded in 1989 by Israel Englander, known as "Izzy," in the quantitative investment world.

Izzy, born to a Polish family in the Crown Heights community of Brooklyn, has always been interested in the stock market. During his college years, he interned at Oppenheimer & Co. and the New York Stock Exchange. He also made a lot of profit from convertible bonds in his early years.

However, Millennium today is an organization with a unique structure, focusing on investment results, with multiple teams and strategies. Interestingly, many top domestic quantitative institutions have collaborators who have worked at Millennium (or its subsidiaries), including Jiu Kun, Ming Huang, Cheng Qi, and Ling Jun, whose founders have worked at Millennium.

Significant Differences in "Risk Performance"

In addition to the perspective of returns mentioned above, the additional perspective of risk (volatility, variance) is also very interesting.

When the dimension of risk is added, we can see that the classification of the entire hedge fund industry has more dimensions.

For example, the volatility of Renaissance Technologies and Pan Xing Plaza Holdings, which have the highest returns, is generally high (partly influenced by the high return base), and the volatility of Pan Xing Plaza Holdings is even higher than that of Renaissance Technologies.

In the neck group, TCI has a slightly higher risk level, while Citadel and De Shaw have significantly lower risk levels.

Overall, the net asset value volatility of quantitative products is significantly lower than that of subjective products.

Extending the above cases to institutions with even lower returns, it can be observed that the volatility of actively managed products is significantly higher than that of quantitative products.

This is related to the core philosophy of active investment (long-term holding, not afraid of volatility), as well as the more proactive and meticulous management of volatility on a daily, weekly, and monthly basis in quantitative investment.

Are "Tiger Cubs" Worth It?

In the overseas fund industry, there has always been a voice advocating for fund managers with a "tiger cub" background. This group can be described as the disciples of the "lighthouse-level" fund father Julian Robertson.

This can be traced back to the old Tiger Fund founded by Robertson in 1980. This subjective long fund "hunts" high-quality assets globally, not just investing in US stocks, and has become a model institution for global investment on Wall Street Later on, Robertson's disciples entered the investment industry one after another, inheriting the master's philosophy that investment is like a fierce battle among wild beasts. Previously, the "Century Blow-up Case" Bill Hwang also emerged from this group.

Among them, Tiger Global, Lone Pine Capital, Viking Global, and others are representative institutions.

However, among them, besides Viking Capital maintaining a relatively outstanding rate of return and relatively good drawdown control, the performance of the other two institutions is actually quite surprising.

Funds like Tiger Global are known for heavily investing in tech giants and have been involved in early investments in Chinese internet platforms, reaping considerable profits in the past. However, observing the current situation is awkward.

Especially for Tiger Global, the compound annual return rate over the past six years has been barely positive, but the risk volatility is very high. The capabilities of this institution today need to be carefully reassessed.

This may indicate that those who once led the market trend will ultimately have to undergo the test of time