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China Fund News reporter Wu Juanjuan

Recently, Simon Judes, co-investment director of Winton, a global systematic investment management giant and the originator of global CTA strategies, James Gilbert, head of client solutions, and Yingming Ke, president of Greater China, said in an exclusive interview with this newspaper that Winton is preparing to launch the qualified domestic limited partnership (QDLP) business from domestic fundraising to overseas markets to further expand its business in China.

As of now, Yuansheng can provide a variety of allocation solutions for domestic and foreign investors. It provides overseas CTA allocation products for domestic investors through QDLP; provides foreign investors with opportunities to deploy domestic markets through the Qualified Foreign Institutional Investors (QFII) mechanism; raises funds from domestic private equity funds and invests in the domestic market; in addition, Yuansheng cooperates with domestic asset management institutions to provide CTA strategies for a wider range of customers.

Simon Judes said that since 2020, the global stock and bond markets have tended to be positively correlated, and the demand for CTA strategies that can provide independent sources of returns has increased. James Gilbert also said that large institutional investors have an unprecedentedly strong demand for diversified sources of income.

Ko Yingming said that Yuansheng recently expanded its China team to build local investment management capabilities in China.

According to data, Winton was founded in 1997. As of now, its global management scale exceeds US$10 billion. Winton's founder David Harding is one of the most influential investors in the global CTA field. As an industry leader, Winton has witnessed the development of the global and Chinese CTA industry.

The full name of CTA strategy is “Commodity Trading Advisor”, which is also known as managed futures strategy in China. It earns returns by trading a basket of macro futures markets.

Simon Judes is Co-Investment Director of Winton, responsible for Winton's investments and research, and is a member of Winton's Executive Management and Investment Committee. He holds a first-class honors degree in Physics and Philosophy from Oxford University and a PhD in Physics from Columbia University.

James Gilbert is Winton's Head of Client Solutions, responsible for Winton's global client relationship management, business development and marketing activities. He is a member of the company's Executive Management Committee. He previously worked in equity derivatives sales at Goldman Sachs and holds a first-class honors degree in economics from University College London and a master's degree in international relations from Cambridge University.

Yingming Ko is the President of Yuanta Greater China, responsible for managing Yuanta’s investment, operations and business development in China. He joined Yuanta in 2011 and holds a bachelor’s degree in statistics with honors and a master’s degree in statistics from the University of Alberta, Canada.

Dramatic changes in the global macro environment

Simon Judes

China Fund News: Please introduce Yuansheng’s core strategy.

Simon Judes：We have multiple strategies, and their common features are: first, trading a basket of fully diversified assets; second, investment trading emphasizes systematization and discipline, and abandons the influence of emotions on trading; third, the experience and lessons accumulated by Winton are a rare advantage. We have the longest CTA strategy in the global market, and the company's investment philosophy has been practiced by founder David Harding since the 1980s.

One of the questions people ask when it comes to automated and systematic trading is “when will managers intervene in the model?” Our answer to this question is as follows: Generally speaking, we only intervene in the model when the market presents unprecedented conditions that the model has not encountered during backtesting. In practice, this situation is relatively rare. For example, the sharp correction in the stock market in 2020 is not unprecedented. The market experienced several large drawdowns in the 1970s, the stock market crash in 1987, and the financial crisis in 2008. It can even be said that the market fluctuations in these moments were larger than the market fluctuations in 2020. The general principle is: once the model is established, we intervene in it as little as possible. However, we will continue to optimize the model based on new data.

China Fund News: Since 2020, the global macro-environment has undergone tremendous changes. What impact has this had on CTA strategies?

Simon Judes：After the 2008 financial crisis, the most important macro variable in the global market was central bank policy. Therefore, many people simply divided assets into risky assets and safe-haven assets. Central bank policies will change the attributes of assets. However, since 2020, the situation has changed. On the one hand, there are more factors driving the market, including epidemic risks, the conflict between Russia and Ukraine, and anti-globalization; on the other hand, the market needs longer time to respond to and digest these factors.

For example, this year the cocoa market has shown a clear trend that is independent of other asset movements. When different assets show different trends, trend-following strategies have a favorable opportunity.

China Fund News: CTA is often called "crisis alpha". However, you don't seem to agree with this statement. Please explain.

Simon Judes：In the 2008 financial crisis, the US stock market plummeted. At the same time, CTA strategies achieved good returns. In addition, in other crisis moments, CTAs can often achieve performance different from the stock market. People believe that CTAs can help when other risky assets perform poorly, which is the origin of the term "crisis alpha".

Although this statement has a lot of factual basis, it is not rigorous. Experience shows that CTAs perform well in many "crisis moments". However, we cannot guarantee that CTAs will perform well in every crisis moment. In addition, "crisis" is not a concept with clear boundaries. There are many reasons for crises, and assets perform differently when different crises occur.

Imagine a situation: all asset classes, including stocks, rise, and the CTA strategy has a net long position. If then, all assets suddenly fall. Because the incident (reversal) happened suddenly, the CTA strategy has not been able to learn and adapt to the new trend in time, and it still maintains a net long position. Therefore, the CTA strategy has a loss at this time. However, if the downward trend continues, the CTA strategy is expected to capture the new trend and make profits again. This example shows that we cannot guarantee that CTA will make money in all crisis situations.

However, in recent years, stocks and bonds have tended to be positively correlated, and a long portfolio consisting only of stocks and bonds can no longer bring investors long-term stable returns. Investors have a strong demand for diversified allocations and diversified portfolios. Since the risk-return is independent of stocks and bonds, CTA strategies can serve as an important source of assets for diversifying portfolio risks.

Medium and low frequency CTA strategies have advantages in overseas markets

China Fund News: How to determine the cycle of trend following strategy?

Simon Judes：We need to determine whether we are trading the trend over the past week, past month, past three months or longer. Over time, we have found that trading based on longer-term trends is more likely to generate alpha in overseas markets.

It is often argued that information is being absorbed by the market at an increasing rate. There is widespread talk of a technology “arms race” among quantitative hedge funds, with quantitative firms striving to increase their trading speed in order to achieve alpha.

While these practices may work in general, trend-following CTA strategies show the opposite conclusion. Faster trading speeds and trend trading based on shorter cycles worked better in the 1970s and 1980s. The advantage over high-frequency, short-cycle strategies lasted until the 1990s. After that, the effect of high-frequency, short-cycle strategies declined. In 2007, Winton made a decision: to slow down. This was a decision made after careful research and argumentation. Although the industry considered it a risky decision at the time, it was proven to be effective afterwards. It largely explains the outstanding performance of Winton's trend-following strategy in the past nearly 20 years.

Become one of the best CTA managers in the world

China Fund News: Competition in the global hedge fund industry is fierce. How does Yuansheng provide value?

James Gilbert ：Yuanta is committed to simplifying its product line and providing a limited number of high-quality products. As an alternative investment manager, we provide strategic complements to traditional assets such as stocks and bonds. For 30 years, Yuanta has been committed to promoting original research and trying to find information that has not yet been discovered and priced in the market.

We work with many large institutional investors around the world. Currently, institutional investors are looking for diversified sources of income. In 2022, stocks and bonds fell globally, and stocks and bonds tended to be positively correlated. Compared with the past decade, global assets and the macro environment have changed significantly, forcing large institutions to look for other sources of returns. Because it can provide "alternative" sources of returns, the role of Winton strategies is prominent. Some clients choose to invest in Winton CTA after working with us for 20 years.

In recent years, private equity and real assets have attracted attention outside of hedge funds. However, the factors that drive Winton's returns are differentiated and unique, and therefore have long-term vitality. Winton has two major goals: first, to become one of the best CTA strategy managers in the world; second, to become an outstanding multi-strategy hedge fund.

In recent years, we have expanded our strategy portfolio to include long-term equity and credit strategies, in addition to trend following and systematic macro models.

James Gilbert

Launched QDLP business in China

China Fund News: Yuansheng is one of the earliest systematic investment management giants in China. Why did you launch the QDLP business now?

James Gilbert：Under the QDLP mechanism, Winton's Chinese clients can deploy global CTA strategies. In this way, domestic clients can not only deploy Chinese CTA strategies through Winton's onshore private equity products, but also deploy global CTA strategies through QDLP. These two strategies can provide clients with independent and diversified sources of income. Winton's success in China is largely due to its patience. Experience shows that as long as we can provide investors with long-term and sustainable returns and support clients in asset allocation, our business will grow steadily.

Ke Yingming:In 2008, Yuansheng established an office in Hong Kong, China to study the domestic futures market. In 2010, we launched the real-time strategy. In 2012, Yuansheng cooperated with domestic public fund accounts to develop products, and Yuansheng provided professional investment capabilities as an investment advisor. In the past decade, we have attracted overseas funds to the domestic market through the QFII mechanism. The new QFII regulations that will be implemented in 2022 allow foreign institutional investors to deploy domestic commodity futures markets. We have introduced foreign funds through QFII. On the other hand, we focus on onshore private equity business and provide domestic Chinese investors with domestic strategies. As the opening of China's financial market progresses further and residents' diversified allocation needs are high, we believe it is time to launch the QDLP business to provide mainland investors with opportunities for overseas market allocation.

Ke Yingming

China Fund News: What is Yuansheng’s vision for its China business?

Ke Yingming:It is an important goal of Yuansheng to convey the concept of asset allocation and provide investors with better quality domestic and overseas diversified investment tools. We hope to provide diversified asset allocation tools for domestic investors. Recently, Yuansheng has expanded and upgraded its Shanghai office space again. Although there is noise in the Chinese market, we have been making reasonable decisions based on our own judgment for a long time, and walking side by side with the Chinese market and investors.

The pictures in this article are from Yuansheng.

Editor: Joey

Review: Xu Wen

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