By Samuel Shen and Vidya Ranganathan
SHANGHAI/SINGAPORE (Reuters) – Chinese hedge fund High-Flyer’s use of artificial intelligence in trading markets has spurred an AI arms race among mainland asset managers that could shake up the country’s $10 trillion fund management industry.
Quant fund High-Flyer not only deployed AI in its multi-billion dollar portfolio, it also built China’s most notable AI start-up DeepSeek whose cost-effective large language model stunned Silicon Valley and undermined Western dominance of the AI sector.
In its wake, aspiring Chinese hedge fund managers such as Baiont Quant, Wizard Quant and Mingshi Investment Management are stepping up AI research, while dozens of mutual fund companies are rushing to incorporate DeepSeek into their investment workflow.
“We are in the eye of the storm” of an AI revolution, said Feng Ji, chief executive of Baiont Quant, which uses machine learning to trade markets with no human intervention.
“Two years ago, many fund managers would look at us AI-powered quants with mockery or disbelief,” said Feng. “Today, these sceptics could be out of business if they don’t embrace AI.”
Most of these funds use AI to process market data and generate trading signals based on their investors’ risk profiles, rather than produce DeepSeek-like models.
And as more home-grown versions of U.S. systematic trading firms such as Renaissance Technologies and D.E.Shaw are born, fund managers expect competition for “alpha”, or outperformance, to intensify.
Wizard Quant advertised last month to recruit top AI researchers and engineers for a lab to “reshape the future of science and technology”.
Demand for coding talent is heating up. Mingshi said its Genesis AI Lab is hiring computer scientists to support research and investment.
In a recent roadshow, asset manager UBI Quant told investors it had already set up an AI lab several years ago to explore the use of AI in investment and elsewhere.
The race to generate better trading strategies using AI requires huge computing power and high-performance chips, and local authorities said they are ready to help.
For example, the government of the southern city of Shenzhen has vowed to raise 4.5 billion yuan ($620.75 million) to subsidise hedge funds’ consumption of computing power, in support of their AI development.
DEEPSEEK SCRAMBLE
China’s mutual fund industry is also scrambling to embrace AI.
More than a score of retail fund companies, including China Merchants Fund, E Fund and Dacheng Fund, have completed local deployment of DeepSeek.
The open-sourced, low-cost large language model has “greatly lowered the bar for AI applications” for the mutual fund industry, said Hu Yi, vice general manager of intelligent equity investment at Zheshang Fund Management.
Zheshang Fund has embedded DeepSeek into its AI platform and is developing AI agents to boost efficiency of research and investment.
For example, AI agents will do most of the work of junior analysts today, such as monitoring market signals and writing daily comments, “forcing humans to do more creative things,” Hu said.
“Before DeepSeek, AI had mostly been the realm of top tier players given the cost, talent, and technology required” but DeepSeek had “levelled the playing ground for Chinese fund managers, which are smaller than their U.S. counterparts,” said Larry Cao, Principal Analyst at FinAI Research.
Baiont’s Feng said AI’s rapid advancement offers late comers to investment management the opportunity to challenge bigger incumbents.
“A seasoned fund manager may have accumulated 20 years of experience, but with AI, one can acquire that experience in two months using 1,000 GPUs,” said Feng, whose five-year-old fund company currently manages 6 billion yuan, eclipsing many older rivals.
($1 = 7.2493 Chinese yuan renminbi)
(Reporting by Samuel Shen in Shanghai and Vidya Ranganathan in Singapore; Editing by Christopher Cushing)
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