Looking at the global market in recent years, the contradictions and differences in the current international system, the higher than expected interest rate hikes caused by high inflation in Europe and the United States, the weakening of investors' risk appetite under multiple shocks, and the overall shrinkage of global asset prices and hedge funds. However, in this context, the top 20 hedge funds still maintain a certain scale growth.
According to the latest global hedge fund AUM list released by Pension &Investment, the top hedge funds in 2022 are all quantitative-driven investments, and 8 of the top 10 have strategies involving quantification, which continues to show the head effect of the strong and strong, which is also reflected in the general trend of increasing popularity of quantitative strategies in the volatile market.
From this point of view, the improvement of quantitative strategies and computing power is also quietly changing the investment world. Recently, China's financial industry backtesting software provider Gaoying Technology submitted an IPO application to the U.S. Securities and Exchange Commission (SEC) to list on Nasdaq, intending to raise up to $20 million through an initial public offering (IPO) under the ticker symbol GIT.
A financial SaaS company from Hong Kong
Zhitong Financial APP learned that Gaoying Technology is headquartered in Hong Kong and has subsidiaries in Shenzhen, Beijing and Suzhou. Based on the Internet and cloud computing technology, the company is committed to providing high-performance backtesting cloud computing SaaS services, enterprise management SaaS services and software system development services, empowering customers with technology and helping enterprises in digital transformation. Provide customers with: high-performance backtesting cloud computing SaaS services; SaaS services for enterprise management; Software system development services.
Historically, all of the company's sales have come from China, and in recent years, the company's performance has improved by leaps and bounds. In terms of revenue, for the six months ended March 31, 2023, the revenue was US$5.528 million, an increase of 97.2% over the same period last year; From the perspective of net profit, the company recorded a net profit of US$2.105 million during the period, an increase of 178.3% over the same period last year.
In the first half of fiscal year 2023, the revenue from high-performance backtesting cloud computing SaaS services accounted for 77.2%, enterprise management SaaS services accounted for about 18.8%, and software system development services accounted for 4%. Compared with the same period last year, not only did the high-performance cloud computing SaaS business record a rapid doubling growth during the year, but even the newly expanded enterprise management SaaS service business was able to grow from scratch and become the "second growth curve".
In fact, this is undoubtedly due to the fact that in recent years, mainstream technology trends such as algorithmic trading, big data analytics, machine Xi, blockchain and cloud computing have been increasingly integrated into trading. In particular, hedge funds are applying this trend of technological advancement to real-world financial trading situations, from trading automation to data analysis, including backtesting. Financial IT solution providers who are able to keep up with the ever-advancing technology and combine financial IT solutions with technological advancements will meet the needs of financial institutions and capitalize on market growth opportunities.
It is understood that the backtesting SaaS platform of Gaoying Technology integrates data, strategy, and distributed task scheduling of computing resources, providing customers with high-performance backtesting tools and computing power services, testing the effectiveness of investment strategies, and mainly serving individuals, institutions, and enterprise customers engaged in quantitative investment strategy development technology service providers/developers or quantitative investment system developers.
In line with the company's scale expansion in recent years, the company's operating costs also increased by 178.2% during the period, the company's sales and marketing expenses increased by 38.7% to US$943,700, and the company's research and development expenses also increased by 75.9% from US$286,300 in the same period last year to US$503,500, which shows that the company has made great efforts to improve its technical capabilities.
It is not difficult to find that the two major business areas of Gaoying Technology, finance and technology, through technology as a bridge, investment management empowerment, and commitment to the construction of financial technology industry chain infrastructure, investment, mergers and acquisitions integration, and technology services do not seem to be false. This also seems to be closely related to Hong Kong's continuous promotion of fintech business development in recent years.
Business development may be affected by the financial market
Since the end of 2022, Hong Kong's financial industry has frequently issued encouraging policies, pressing the accelerator button for the progress of technological innovation. In March this year, the Hong Kong Stock Exchange (HKEX) introduced new rules for the listing of specialized technologies to vigorously support the financing of enterprises in the technology innovation industry. In August, the Hong Kong Monetary Authority (HKMA) announced the new Fintech Promotion Programme, which will promote the adoption of fintech in the financial services industry through a series of activities and initiatives. As an international financial center, Hong Kong's determination to empower financial prosperity with technology in the future is evident in Hong Kong's "bridgehead" for China's integration with international standards.
In this context, fintech companies have undoubtedly become a popular track in recent years. At the same time, with the substantial improvement of computer computing power, the accumulation of massive available data and the establishment of investment models, domestic quantitative funds have developed rapidly, which has undoubtedly given birth to a large number of enterprises serving the capital market and quantitative strategies.
The so-called backtesting solution is a subset of financial IT solutions and is a method used by quantitative traders to test their trading strategies against historical data to see how they have performed in the past. This involves simulating the execution of a strategy on historical data and evaluating its performance based on certain metrics. Backtesting is an important step in developing a trading strategy, as it allows traders to see if their ideas are sound, identify potential problems, and analyze profitability before risking any real capital.
According to Frost & Sullivan, the global revenue generated by backtesting solutions increased from $205.54 billion in 2017 to $307.63 billion in 2022, growing at a CAGR of 8.4% during the period. The growing demand for diversified algorithmic trading strategies, as technological advancements such as algorithmic trading, big data analytics, machine Xi, blockchain, and cloud computing have improved are expected to drive the market growth during the forecast period, with global revenue generated by backtesting solutions expected to grow at a CAGR of 9.4% from 2023 to 2027.
However, even though quantitative strategies have been booming in recent years, they still can't withstand market volatility.
From the perspective of A-shares, since the beginning of this year, the stock market has risen first and then declined, and since March 2023, the performance of the stock market has been sluggish after the macro economy has shifted from "strong expectations" to "weak reality". The withdrawal of foreign capital has intensified the bearish power of the A-share market, resulting in the continued weakness and volatility of the stock market.
At this stage, this is not conducive to the development of high-profit technology, which has many customers in China. On the one hand, volatility or downturn in financial markets may delay customers' spending patterns and reduce future revenue growth. At the same time, uncertainty and instability in financial markets can lead to a loss of confidence among investors and reduce the demand for financial IT solution services.
On the other hand, a decline in equity or fixed income returns may affect the purchasing power of investment management clients. In terms of risk factors, we also admitted that since part of the company's revenue comes from clients involved in investment management and quantitative trading strategy development, many of them have profitability and management expenses linked to assets under management. A decline in the equity market will not only depress the value of assets under management, but may also lead to a significant increase in customer redemption requests from corporate clients, further reducing their assets under management. The reduction in customer margins and overheads may cause the Company's customers to cut costs, which can further impact the Company's earnings.
Not only that, but the company's revenue and profitability depend on the continued acceptance and use of quantitative trading strategies by Chinese investors and investment managers, and quantitative trading is an active investment strategy that is still a relatively new and emerging trading strategy in China, and its scale and recognition need to be improved.
From the perspective of industry trends, China's quantitative fund industry is still in its infancy, and the prospects for supporting technology service enterprises are relatively bright. However, at a time when the economy continues to be under pressure and the capital market is still sluggish, the business expansion of Gaoying Technology may need to be more prudent.