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Two Sigma to debut onshore quant product

The New York-based quant fund manager is ready for its first onshore fund through the private fund management (PFM) channel.

Two Sigma’s wholly-foreign owned enterprise (WFOE) in Shanghai, Two Sigma China, recently received the approval for its China Juliang Macro Strategy No 1 Private Securities Investment Fund, according to the Asset Management Association of China (Amac).

This move comes after the firm was approved for a PFM license in September last year. The licence enables foreign entities to develop and sell funds investing in onshore assets to domestic qualified investors, which include institutional and high net worth investors.

The firm obtained an investment management WFOE licence in November 2018.

Two Sigma is squarely focused on quant funds, using “machine learning, distributed computing and other technologies to find connections in the world’s data”, according to its website.

FSA sought more information, but the firm was unable to reply in time for publication.

“We will continue to expand the China team and local infrastructure to support our development of a domestic fund management business and use our data science methods and advanced technologies to serve clients in China,” Kenny Lam, chief executive officer of Asia-Pacific for the firm, said last year.

Lam joined Two Sigma in April last year and he was formerly president of Shanghai-based wealth manager Noah, according to a statement from the firm.

China questions

The firm’s use of quant funds in China’s less mature market have been called into question.

“Two Sigma’s approach, which relies heavily on computer-driven trading, may not seem a natural fit with the Shanghai market, where retail investors account for about four-fifths of trading volumes, and which is prone to periods of high volatility”, according to a Financial Times report in June last year.

“Traditionally, strategies such as Two Sigma’s have flourished in more developed markets such as the US and Europe, where fund managers depend on complex algorithms to rapidly profit from small changes in prices,” the report added.

However, David Siegel, co-founder of Two Sigma, said in the report that “now is the right time” to try to crack China.

“The market is young, but it will become more systematic and it is maturing. This is the beginning of an algo approach in China. We are a data science-driven firm and we can find unique ways to make money,” he added.

Two Sigma has an office in Hong Kong, with a dealing in securities (type 1) licence that the firm obtained in 2014, according to records from the Securities and Futures Commission (SFC). With the licence, the firm is able to sell mutual funds to clients in Hong Kong.

However, the firm does not have SFC-authorised funds, the regulator’s records show.

Competitors

In total, there are two dozen foreign PFM licence holders that have launched 69 onshore funds, according to latest data from Amac.

Another quant asset manager, the UK’s Winton Capital, is also active in the mainland. Winton established its local investment management team in China in 2012, according to the firm’s website. The firm now manages seven products, Amac records show.

Other quant firms with PFM licences are DE Shaw and Man Investments, FSA previously reported.

Among all the foreign PFM license holders, UBS Asset Management owns 13 PFM products in the mainland, leading the pack.

Usually, there is a six-month limit for new PFM license holders to register a fund for launch but recently it has been extended to 12 months due to the coronavirus outbreak.

Part of the Bonhill Group.