Two of China’s best-known quantitative hedge funds are embroiled in a court dispute that centers on the hiring of a trading strategist to a rival firm, a sign of intensifying competition for the industry’s top talent.
(Bloomberg) — Two of China’s best-known quantitative hedge funds are embroiled in a court dispute that centers on the hiring of a trading strategist to a rival firm, a sign of intensifying competition for the industry’s top talent.
Shanghai Ruitian Investment LLC is suing Zhejiang High-Flyer Asset Management and its associated companies over a potential “infringement on technology secrets,” according to court documents.
Yang Yunhao, who led Ruitian’s development of high-frequency trading strategies and later joined High-Flyer, was named among the defendants. Yang couldn’t be reached for comment.
The lawsuit underscores the fierce competition for talent among Chinese quant funds and shines a rare public light on the proceedings. Many firms are rushing to enhance or develop new strategies after rapidly expanding in recent years and as choppy markets disrupted performance.
High-Flyer, which manages about 60 billion yuan ($8.7 billion), said its hiring process was prudent and compliant, and the relevant employee joined only after non-compete obligations ended. Other suits over commercial secrets and unfair competition related to that dispute are still ongoing, according to a Feb. 28 statement on High-Flyer’s Wechat account. These have no impact on the firm’s operations, it said.
The growing clout of foreign players is only adding to the pressure on domestic quant funds. Bridgewater Associates doubled its onshore assets under management to more than 20 billion yuan last year after its upgraded All Weather strategy reaped a 7.4% gain amid market swings.
Competition for the best staff is growing in hot sectors such as quant investing and employers have been using increasingly long non-compete periods to protect themselves, according to Eric Zhu, Shanghai-based head of financial services at recruiter Morgan McKinley.
“It’s been like this for a while,” he said. “Talent is like a non-renewable resource in the industry for the near-to-medium term.”
Ruitian, founded in 2013 by former Citadel researcher Xu Xiaobo, said Yang possessed its quantitative strategy codes which amount to “core commercial secrets,” and sought 5 million yuan in compensation in an unfair competition case, according to a Feb. 20 court document posted on China Judgements Online.
High-Flyer, which was the largest private quant fund in 2019 with about 90 billion yuan, remains a top player even as assets have fallen back to about 60 billion yuan. The company had built an investment and research team of about 160 people as of 2021, including Olympiad gold medalists, scientists from research institutes and senior researchers recruited from global hedge funds. The firm apologized for investor losses in 2021.
Winning Strategies
A proprietary high-frequency stock index futures strategy by Ruitian gained an annualized 500% in 2014, and the company developed more high-frequency strategies later on, boosting assets under management to more than 10 billion yuan in 2019, according to its website. It currently manages between 5 billion and 10 billion yuan, according to government registration data.
Many of the industry’s top players, including High-Flyer, temporarily stopped accepting new money in 2021 after some of the industry’s most popular trades became crowded and performance took a hit. Most have now re-opened to investor subscriptions after performance stabilized and improved strategies allowed room for more assets.
A court in Shanghai has ruled Yang didn’t violate his one-year non-compete agreement, which bars former employees from joining competitors, and ordered Ruitian to pay him 3.45 million yuan in damages, according to High-Flyer’s statement. High-Flyer declined to comment further, while Ruitian didn’t reply to email and phone requests for comment.
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