On December 27, 2021, the well-known quantitative private equity giant Magic Square Quantification opened the apology mode, and its CEO apologized to investors in the circle of friends and expressed his understanding of investors' uncomfortable feelings, even if they were scolded to fully accept it; but don't do it, don't punch your face.
On the second day, Magic Square Quantitative issued a performance statement, feeling deeply guilty that the product drawdown reached its historical maximum.
First, the magic square quantitative interpretation
Regarding the explanation of performance drawdown, Magic Square Quantification indicates that their ARTIFICIAL investment strategy, which is repeatedly tested by them, believes that the value of stocks is not a problem in the long run, but it is not done well in terms of buying and selling time, and when the market has a sharp change of style, AI tends to take greater risks to obtain higher returns, thus exacerbating the drawdown.
The extreme changes in the structural market since 2022, from new energy to cycle to the main line chaos in the fourth quarter; in such a drastic change situation, there is a certain lag in quantifying the same model, and it is difficult to capture the hot spots in the market. -
Finally, Magic Square Quantitative said that it will continue to adjust its strategy to adapt to the new market environment, while reducing the concentration of positions and reducing the market's fluctuations in performance, and after this, Magic Square Quantitative announced the suspension of all subscriptions for its products.
Second, tens of billions of private equity collective water retrograde
However, this is more than a month ago, to the beginning of the Year of the Tiger; tens of billions of private placements have encountered collective "water retrograde".
Xitai Investment and Tongben Investment have shown a certain degree of retracement, and some products once touched the early warning line and the stop loss line, which shocked the market, especially the investors who bought the products, and even issued the soul question of quantitative investment.
At the beginning of the new year, private placements have a bad start. Data from the private placement network show that as of February 7, the average income of tens of billions of private placements this year is -4.32%, of the 94 tens of billions of private equity institutions that publicly disclose their performance, only 11 have gained positive returns, and the rest are all floating losses, and the losses of some tens of billions of private equity products are even as high as 15%-20%.
Tens of billions of private placements are the leaders of the past market, so there is today's tens of billions of scale. There are many reasons for the large loss of today's performance, but one of the important reasons is the substantial expansion of scale, coupled with the homogenization of the strategy, under the objective constraints of customer pressure and stop loss lines, driving the market to fall further.
Third, the scale and income can not be combined
Need to be surprised? Not at all
In fact, there is nothing surprising about this situation. From the sharp retracement of the net value of the magic square quantification to the 90% decline of 10 billion private placements, it once again proves an ancient and immutable truth:
Scale is the natural enemy of revenue
Excess returns and management scale are a pair of natural contradictions, the smaller the scale, the easier it is to make a yield; and the larger the scale, the less the market can take on so much money.
As a quantitative private placement headquartered in Zhejiang, because of its good performance and performance, it exceeded the scale of 10 billion in August 2019, which is a very important historical relationship node; and in the following two years, the quantitative scale of the magic square grew from 10 billion to 100 billion, doubling 10 times.
This also explains the sharp drawdown in its earnings, even below the tracking index. The fundamental reason is that the scale is too large, the strategy is homogeneous and heavily crowded, which increases the difficulty of investment.
Industry insiders believe that quantification captures the wrong pricing caused by market irrationality, so the quantitative turnover rate is very high, but the capacity of the entire high-frequency market is limited. If the management scale is too large, the frequency of transactions will inevitably decline, and the fund will shift from high frequency to low frequency. This process will naturally lead to an untimely response, and naturally there will be a decline in returns.
In the case of the changing market environment, quantitative institutions need to constantly iterate on strategies, and this is a very big test for research and development, and the rise of magic squares is only a few years; it does prove that the past performance of magic squares is indeed solid enough, bringing considerable returns to investors, but the recent drawdown is not only related to its own scale, but also related to the failure to continue to increase strategic profit investment.
Over the past year, the size of private securities funds has soared from $3 trillion to more than $6 trillion. The share of such funds in the market has increased significantly, exacerbating the vulnerability of the entire market. The recent performance of the market is a manifestation of this vulnerability.
Li Bei of Banxia Investment pointed out that the scale of more than 80% of the domestic securities private equity fund is a strange form: the strategy is simple stock bulls, no hedging means, not dispersed in asset classes; most of the positions are concentrated in the industry and style, especially in the hot sectors that have outstanding performance in the early stage; but there are absolute return requirements and stop-loss line constraints.
Therefore, when the market fluctuates, the popular industries with a high proportion of private equity funds have a large decline, because of high positions and high concentration, private equity net worth often falls rapidly, often can only reduce the position and stop loss, driving the further decline of the market.
From the quantification of the magic square to the 10 billion private placement of 90% of the street, the scale is the natural enemy of the income.
It also indicates that private equity managers must be able to sort out and guard the boundaries of personal capabilities, otherwise it will be difficult to truly obtain stable returns for customers.
Zhang Kun in the front and Glen in the back illustrate this simple and profound truth.