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Chinese Hedge Funds Embrace AI, Challenging Western Dominance in Fund Management

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China’s hedge fund industry is undergoing a dramatic transformation as artificial intelligence (AI) takes center stage, driven by the success of High-Flyer, a prominent Chinese hedge fund that has integrated AI into its multi-billion-dollar portfolio. High-Flyer’s innovative approach to AI in trading, along with its DeepSeek AI startup, has sparked a race among mainland Chinese asset managers to adopt AI technologies, potentially disrupting the $10 trillion fund management market.

High-Flyer‘s success in leveraging AI to process market data and develop trading strategies has prompted other Chinese hedge funds, such as Baiont Quant, Wizard Quant, and Mingshi Investment Management, to enhance their own AI research. These funds are now accelerating their AI development efforts to stay competitive. According to Feng Ji, CEO of Baiont Quant, “We are in the eye of the storm” of an AI revolution, emphasizing that skepticism about AI-powered trading is quickly fading. “Two years ago, many fund managers mocked us AI-powered quants. Today, those who don’t embrace AI could be out of business.”

While these funds are largely focused on using AI for market analysis and generating trading signals based on investor risk profiles, the ambition is clear: to develop cutting-edge AI models like DeepSeek. This AI model, which stunned Silicon Valley with its low-cost capabilities, has significantly reduced barriers for Chinese funds to incorporate AI into their operations.

As more Chinese hedge funds look to replicate the success of U.S. systematic trading firms like Renaissance Technologies and D.E. Shaw, competition for “alpha” (outperformance) is intensifying. Wizard Quant, for example, recently announced plans to recruit top AI researchers to reshape the future of science and technology in trading. Meanwhile, Mingshi Investment is expanding its AI capabilities with its Genesis AI Lab and UBI Quant has been working on AI research for years.

The demand for highly skilled coding talent is escalating as these funds race to develop superior trading strategies using AI. In response, local authorities, like the government of Shenzhen, have pledged to invest in hedge fund computing needs, with plans to subsidize AI computing power to the tune of 4.5 billion yuan ($620.75 million).

On the mutual fund front, many Chinese retail fund companies are also jumping on the AI bandwagon. Firms such as China Merchants Fund, E Fund, and Dacheng Fund have successfully deployed DeepSeek, benefiting from its cost-effective AI solutions. According to Hu Yi, Vice General Manager at Zheshang Fund, DeepSeek has made AI accessible to the wider mutual fund industry, allowing funds to automate tasks like market signal monitoring and report generation. This frees up human resources for more strategic, creative roles.

In a broader context, DeepSeek‘s open-source, low-cost large language model has leveled the playing field for smaller Chinese fund managers, previously at a disadvantage compared to their larger U.S. counterparts. As Larry Cao, Principal Analyst at FinAI Research, explains, “Before DeepSeek, AI had mostly been reserved for top-tier players due to the high cost, talent, and technology requirements.”

Baiont’s Feng Ji highlights how AI has democratized access to expertise, enabling newer firms to challenge established players. “With AI, you can acquire 20 years of experience in just two months,” he said, noting that his own five-year-old fund, managing 6 billion yuan, has already surpassed many older rivals in terms of performance.

US-Blacklisted Zhipu AI Secures Fresh Funding from Chinese State Firm

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Zhipu AI, a Chinese AI startup, has secured 500 million yuan ($69.04 million) in funding from Huafa Group, a state-owned conglomerate based in Zhuhai, Guangdong province. This follows the company’s earlier announcement in January of a separate 1 billion yuan capital raise. Huafa Group’s investment comes amid competition between Chinese cities to back promising AI startups, as Beijing views this sector as vital to its technological rivalry with the United States, according to Zhuhai Special Economic Zone Daily.

Earlier this month, Hangzhou City Investment Group Industrial Fund, a state-backed entity from Hangzhou, also participated in a major funding round for DeepSeek, a competitor of Zhipu AI, securing 1 billion yuan. This aligns with China’s push to strengthen its AI capabilities, as DeepSeek‘s large language models have gained attention for allegedly matching the performance of Western counterparts at lower development costs.

Founded in 2019, Zhipu AI is widely recognized as one of China’s “AI tigers”. The startup has drawn investments from prominent tech giants such as Tencent, Meituan, and Xiaomi, across over 15 funding rounds, according to business registration platform Qichacha. In July 2024, Zhipu AI was valued at 20 billion yuan.

The latest funds will be directed toward advancing the development of its GLM foundation model and furthering the company’s technological innovation and ecosystem expansion. However, this investment comes after Zhipu AI and its subsidiaries were added to the U.S. Commerce Department’s export control entity list in January, which prevents the company from procuring U.S.-made components.

Singapore Prosecutors Link $390 Million Fraud Case to U.S. Server Supply

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In a significant fraud case involving Singapore-based firms, prosecutors revealed that $390 million worth of transactions are at the center of allegations that the companies falsely supplied U.S. servers to Malaysia. Three individuals have been charged with defrauding Dell and Super Micro by misrepresenting the final destination of the servers, which may have contained sensitive components such as Nvidia’s artificial intelligence (AI) chips.

The case has raised concerns due to potential links to DeepSeek, a Chinese AI firm under investigation by the United States for possibly utilizing banned Nvidia chips. The chips in question, if used by DeepSeek, could be the high-end semiconductors restricted by U.S. export controls. Although Singapore authorities have acknowledged the servers might have contained Nvidia chips, they have not confirmed if the chips were subject to U.S. export restrictions.

The three suspects—Aaron Woon (41), Alan Wei (49), and Li Ming (51)—are facing charges of fraudulent misrepresentation. Prosecutors also allege that Wei paid himself dividends totaling millions of dollars, while Woon reportedly received a substantial bonus. The case forms part of a broader investigation in Singapore into false representation, with 22 individuals and companies under suspicion and six others arrested in connection with the matter.

At this stage, Singapore authorities have not offered further details on whether the chips involved were high-end models, nor have they commented extensively on the potential connection to DeepSeek. Singapore’s Law and Home Affairs Minister K Shanmugam declined to speculate on the link between the two cases.

In response to the charges, Shashi Nathan, Wei’s lawyer, has requested proof from the prosecutors regarding the alleged fraudulent transactions. Lawyers for Li and Woon have not made public comments yet. Malaysia is also conducting its own investigation into whether its laws were violated in the case.