Huaxin Quantitative exclusively responded to First Financial News, stating, "The scale of our hedging products is now very small, and we (plan to) focus on quantitative long-only investment in the future."

Huaxin Quantitative, known as a quantitative giant, is giving up on hedging products. According to industry insiders, Huaxin Quantitative recently announced in a notice to investors that due to changes in market conditions and considering the risks of hedging products, it will gradually reduce the investment positions of all its hedging products. Regarding Huaxin Quantitative's next product strategy after abandoning hedging products, the company exclusively responded to First Financial News: "The scale of our hedging products is already very small, and (subsequently) we are preparing to focus on quantitative long-only investments." Public information shows that the scale of some of the company's hedging series products has already dropped below ten million yuan.

In recent times, the capital market has clearly exhibited a one-sided trend, and the returns of many quantitative hedging products have not met expectations. This has led to questions in the market: will the giants' lead prompt other institutions to follow suit and abandon quantitative hedging strategies? Several quantitative fund managers told First Financial News that it is currently impossible to discern whether abandoning hedging strategies is an overall industry trend. "For fund managers, enriching the product line and allowing clients to choose products based on their risk preferences is a better approach," said a market head from a private equity firm with assets under management exceeding 10 billion yuan.

Huaxin Quantitative reduces the scale of some products to millions of yuan. According to First Financial News reporters, sources from the channel have revealed that the quantitative giant Huaxin Quantitative recently informed investors that due to changes in market conditions, it has become difficult for its hedging series products to simultaneously achieve returns and reduce risk exposure, resulting in a significant decline in the potential return-to-risk ratio. Future returns are expected to be significantly lower than investors' expectations. Considering the risk attributes of hedging products, the company will gradually reduce the investment positions of all hedging series products and waive the management fees for the hedging series products from the current month onwards. In the aforementioned announcement, Huaxin Quantitative stated that the remaining scale of its hedging products is small and is expected not to have an impact on the market. At the same time, it advises investors to comprehensively assess and adjust their investment portfolios in a timely manner.

According to a previous research report from the China Merchants Bank Research Institute, hedge funds specifically refer to market-neutral products, whose investment strategy involves buying a portfolio of stocks while simultaneously selling an equivalent amount of stock index futures. As long as the stock portfolio outperforms the stock index futures, these funds can achieve positive returns, aiming to generate returns that are completely independent of the broader market trend. Therefore, the returns of hedge funds can be divided into two parts: one is the relative return of stocks to the broader market, also known as the excess return; the other is the relative return of stock index futures to the broader market, also known as the hedging cost. The difference between these two constitutes the return of the hedge fund.

First Financial Review found that the scale of some hedge series products of Huanfang Quantitative has been reduced to below ten million yuan. For example, the "Hedge No." product currently in operation has a latest net value of . as of the end of the month, but past performance is not displayed due to "fund size less than ten million yuan."

Hedge series products have shown significant volatility. With the recent market exhibiting a clear unidirectional trend, the volatility of quantitative hedge products has increased noticeably. Available information indicates that a hedge product under a certain billion-scale private equity firm experienced a decline of .% on a specific day, but subsequently recovered its losses on another day with a single-day increase of .%. On a certain day, Shengquan Hengyuan, a billion-scale quantitative private equity firm, issued an unusual letter of apology to its investors. The company stated that due to the convergence of the basis in stock index futures and the transition of all futures contracts to positive basis, leading to losses, its neutral products experienced significant counter-trend drawdowns during a market surge. The convergence loss from negative basis in stock index futures is a one-time loss that the institution needs to bear, and the current large positive basis loss is temporary, mainly due to trading inefficiencies at the exchange. If the market pricing mechanism is restored, this loss will be compensated.

The data from Chaoyang Yongxu's third-quarter report shows that the sharp rise in the index at the end of the month and the extreme positive basis have put neutral strategies in a difficult position, making them the worst-performing strategy in the third quarter, with an average return of -%, and only % of products achieving positive returns. According to the China Merchants Bank Research Institute, over the past years, the average return of domestic hedge funds has been .%. However, in recent years, the returns of hedge funds have shown a significant decline. "Since , the decline in returns from hedging strategies is mainly due to the one-sided market decline, which is difficult to navigate, coupled with limited short-selling tools on the short side, and the discount on stock index futures," the chairman of a billion-scale private equity firm told Yicai.

The performance differentiation within hedge funds is also significant. There is a notable difference in performance between public hedge funds and private hedge funds. The average return of public hedge funds is .%, while that of private hedge funds is .%. The Research Institute of China Merchants Bank believes that the main reason for this difference is the greater restrictions on public investment strategies, with high-frequency trading and reverse trading being strictly limited. Secondly, there is also a significant difference in performance between domestic and international hedge funds. The average performance of domestic hedge funds is .% higher than that of overseas hedge funds, primarily because the domestic market is dominated by retail trading, which is relatively less efficient, making it easier to achieve excess returns. Finally, there is also a large performance differentiation within private hedge funds, mainly due to the differences in the ability of individuals to obtain excess returns.

Few hedge funds consistently deliver evergreen performance. Hedge strategies, due to the existence of hedging costs, are mostly negative-sum games. Unlike equity funds that can enjoy the long-term upward trend of the market, or fixed-income products that can enjoy fixed coupon returns, the negative-sum nature determines the lack of a stable foundation for long-term positive returns. This, in turn, drives competition between hedge funds and the entire market. The more intense the competition, the shorter the effective duration of strategies, even if a fund surpasses all competitors, its own scale becomes an even more formidable opponent.

The research institute of China Merchants Bank analyzed that fierce competition is a significant reason for the significant performance differentiation among hedge funds and the difficulty in maintaining consistent performance. Due to the large performance differentiation and the rarity of consistently successful funds, selecting the right hedge fund is crucial. Hedge funds involve investment strategies related to derivatives and financial engineering, often operating as opaque "black boxes," and differ significantly from general equity strategies. They are not suitable for ordinary investors to select on their own; instead, they should be researched and screened by professional institutions. These outstanding hedge funds typically have small investment scales, unique and difficult-to-replicate investment strategies, and top-tier high-frequency trading capabilities. If investors are fortunate enough to identify an excellent hedge fund, the next consideration is whether the current investment timing is appropriate.

In the context of changing market conditions and significantly increased volatility in quantitative hedging products, the highly influential Huanfang Quantitative first expressed its "abandonment." Will this lead to other institutions following suit and abandoning quantitative hedging strategies? Several quantitative institutions interviewed by First Financial Daily stated that they would not follow suit in abandoning hedging products. The chairman of a private equity firm with assets under management exceeding 10 billion said that hedging/neutral strategies are mainstream in overseas markets, "How can a company be considered a quantitative company if it doesn't even have a neutral strategy?" The head of the marketing department at another private equity quantitative institution with assets under management exceeding 10 billion also said that market-neutral products are indeed somewhat redundant for individual clients, especially when market beta is poor and they are still being promoted as low-risk products to clients; while when market beta is good and the returns on neutral products are not high, clients with higher risk tolerance should consider allocating to index long positions, aiming for both alpha and beta.

Before the National Day, channels need to provide clients with supplementary lessons to popularize the basics of basis, such as the fact that changes in the basis before the delivery date are just a process, and even if the basis widens, it is only a floating loss, which will be corrected after the National Day. Even if some products encounter forced liquidation, it only requires reopening the hedge, with a slight cost of hedging in between, and that's all. The middle part just increases a lot of communication and explanation workload." said the above-mentioned person in charge. Although quantitative hedging products may seem a bit "tasteless to eat but a pity to discard," the market person in charge believes that "we should convey to clients what kind of risk preference, and what kind of risk-return characteristic product lines they should adapt to. We cannot simply evaluate from a single indicator like yield; we should comprehensively recommend to clients from perspectives such as Sharpe ratio, how much risk is taken, and how much return is obtained. Since the year, we have launched multi-strategy hedging products and believe that a single strategy has cyclicality. For managers, enriching the product line and allowing clients to choose according to their own risk preferences is better."

"Market-neutral products should indeed be allocated to institutions and are not suitable for most individual investors; measures to deal with extreme situations need to be improved and strengthened, but one should not cut off one's nose to spite one's face. If a more conservative position management approach is adopted to deal with extreme events, it will reduce capital utilization, thereby affecting investors' profit experience, which goes against the fundamental principle of 'putting investors first,'" she said.