DeepSeek founder Liang Wenfeng's investment firm, Zhejiang High-Flyer Asset Management, saw one of its quant funds slump by 15.7% in the week ending July 17, as an AI stock rout impacted China's quantitative hedge funds. The firm manages over $10 billion (70 billion yuan). This marks a sharp reversal for High-Flyer, which had previously delivered average returns of about 56.6% in 2025. Another fund at HanTak Investment Management lost an estimated 16.1%, with its CSI 500 Index tracking strategy dropping 14.3%. HanTak manages over $700 million (5 billion yuan).
The sharp declines highlight the impact of extreme volatility in AI-related stocks, which surged earlier in 2026 before plummeting due to bubble concerns. The CSI 1000 Index of small-cap Chinese stocks fell over 12% last week, the largest drop since February 2024. Chinese quants' average excess return shrank by more than 10 percentage points from a year earlier to just 3.5% in the first half of 2026, as diversified portfolios struggled to outperform the market during the AI stock rally.
The sell-off was exacerbated by an unusual convergence of factors, including momentum, liquidity, and short-term reversal, all moving lower simultaneously, creating a rare challenge for quantitative strategies. Market volatility was also approximately 50% higher than in 2025. HanTak attributed the drawdown to a reversal in market trends since June 29, as high-momentum growth stocks that had led gains in the first half of the year were suddenly sold off. This was compounded by a slump in overseas technology shares, falling margin-financing balances in China, concerns over liquidity being drained by large IPOs, and broader deleveraging efforts. In response, more than 10 Chinese hedge funds, including quants, have pledged to subscribe to their own products with proprietary money to boost investor confidence.
