China'S Capital Investors Are In A Big Downturn: Private Equity Funds Are Keen On Volatility Arbitrage And High Net Worth Investors Are Eager To Redeem Them In Advance.

"Unexpectedly, the US stock market has now become a policy market." Wang Qiang, a domestic private equity fund manager involved in US stock investment, regrets to reporters.

James Brad, President of the Federal Reserve Bank of the United States, warned Saint Louis not to bet too much on the US Federal Reserve's interest rate cut in two weeks, and the global spread of the new crown pneumonia epidemic. In March 5th, the three major U.S. stock indexes dropped by more than 3%.

"Originally we planned to copy the bottom, but now it seems that the time is not mature enough." Wang Qiang told reporters.

Reporters learned that in the past few days, the stock market fell more than 11%, whether it should copy the U.S. stocks, it seems that many Chinese capital is quite puzzling.

A head of a large domestic investment and management agency involved in the US stock investment admitted to reporters that there are obvious differences between them today. One side bet that the Fed will continue to cut interest rates two weeks later to boost the US stocks, plus the short profits start to leave. At this time, the bottom line is high. The other side believes that the impact of the spread of the epidemic on the global recession is far more than that of the Fed. US stocks continued to decline.

"Fortunately, our US stock position dropped from 60% to 35%, and most positions held a risk hedge through the S & P 5000 index futures. Therefore, the future volatility of US stocks has little pressure on our performance." He pointed out.

The head of these large financial institutions found that, with the recent surge in US stocks, more and more domestic private equity funds are trying to carry out the volatility arbitrage transaction. On the one hand, through the procedural trading model, with the market trend of fluctuation, selling stocks and buying stocks at a low price, we will take advantage of the negative correlation between the VIX panic index and the US stock index, and take the opportunity to buy up VIX while buying the stock index period. Arbitrage.

"There are domestic quantitative investment private funds in this way, in the past 7 days with 4 times the leverage of funds to get more than 15% returns." The head of the large domestic information management organization pointed out.

Many quantitative investment private funds admitted to reporters that although the volatility arbitrage strategy created a lot of profits, but the decline in US stocks caused losses in other portfolios and swallowed up the majority of the volatility arbitrage strategy gains.

From "selling high and buying low" to "fluctuating arbitrage"

Although Brad reminded agencies not to bet too much on the Fed's interest rate cuts in two weeks, most Wall Street financial institutions disagreed.

"At present, the whole Wall Street investment organization is divided into two camps, one side firmly bet that the Federal Reserve will cut interest rates in two weeks, and the other side believes that the Federal Reserve will postpone the next interest rate cut to May." Hedge fund PGI quantitative investment strategy director Ivan Petej told reporters that such a divergence is causing further fluctuations in the US stock market, forcing more and more hedge funds to adopt the strategy of combining trend operation with quantitative investment. On the one hand, they will profit from selling the stocks and buying stocks on the one hand according to the trend of market fluctuation. On the one hand, they will buy "public security" and "medical insurance" stocks that are vulnerable to the new crown pneumonia epidemic.

The reporter understands that this trading strategy is also emulated by many domestic private equity funds involved in US stock investment.

A private equity fund trader told reporters that they are now glued to changes in the FedWatch data on the Chicago Mercantile Exchange (CME) every day to grasp the latest judgement of whether the Federal Reserve will cut interest rates in two weeks or not, and decide whether to continue to follow the trend of market fluctuations and carry out high selling and low buying operations.

At present, the FedWatch tool of the Chicago Mercantile Exchange (CME) shows that foreign exchange traders of financial institutions believe that the probability of the US Federal Reserve meeting in March to continue to cut interest rates by 25 basis points is 100%, while interest rate futures traders think that the possibility of cutting 50 basis points is 67%. In addition, the possibility of the US Federal Reserve's interest rate falling to 0-0.25% increased to 31% in December.

"So we decided to take out 10% of the shares and bet on the US Federal Reserve's interest rate cut." The private equity fund trader disclosed. At the same time, they also bought the short positions of the S & P 500 index futures and hedged 40% of their positions. The reason is that they found that the recent Wall Street collective financial market collective bet on the two weeks after the Federal Reserve cut interest rates at the same time, the interest rate reduction effect has produced new differences - more and more hedge funds believe that the Fed continues to cut interest rates, may not be able to effectively alleviate the global spread of the impact of the global recession on the global economic downturn, but further stimulate the valuation of U.S. stocks and other riskier assets, resulting in the bubble burst. The risk is higher, so these hedge funds change the original trend operation strategy, and turn to the volatility arbitrage.

"In the past, the daily volatility of US stocks was less than 1%, and now fluctuates by more than 3% a day. For many hedge funds, this is the best opportunity to carry out volatility arbitrage." Ivan Petej indicates.

Reporters noted that most of the current "returnees" private equity funds are following the US hedge fund and are keen to develop the volatility arbitrage strategy, which mainly focuses on the negative correlation between the VIX panic index and the US stock index, so as to gain a relatively stable arbitrage return.

Individual "returnees" private equity fund is a very rewarding reward. Over the past week, more than 13.5% of the return on investment has been achieved through capital leverage.

"This does not mean that their overall net performance is strong." A private equity fund of returnees sent a 60/40 bond investment strategy. The decline in net worth of other portfolios has resulted in the decline in net value of other portfolios. At present, the profits they get from the volatility arbitrage strategy are almost "filling" the losses of the former, ensuring that the net value of their products fluctuates relatively smoothly during the US stock crash.

What worries him most is that once the US stocks continue to fall, the net value of the portfolio will continue to fall, and the profit of the arbitrage strategy will no longer fill the deficit gap.

High net worth LP early redemption "difficult operation"

The sharp fall in US stocks has also made the high net worth crowd of overseas hedge funds through QDLP and other channels "on pins and needles".

A QDLP product sales agency official told reporters that they have received several phone calls from high net worth investors every day, asking about the fluctuation of daily net value of QDLP products. Even some investors said that if the global spread of the epidemic led to the transfer of us shares from cattle to bear, please help arrange early redemption as soon as possible.

"In fact, the cost of LP early redemption of QDLP product share is not low." He pointed out. According to the QDLP product terms, if the QDLP fund does not exceed 5% of the total redemption rate on the open day, the redemption fee will not be charged; otherwise, the fund manager will charge the 4%-7% redemption fee and deduct the net value of the QDLP product. This is equivalent to the domestic investor's early redemption initiative, and may have to incur additional 4%-7% operating costs.

Reporters learned that other QDLP products also have special provisions for capital redemption. For example, the QDLP product management team has drawn up 4 share redemption time points during the product's existence period, and domestic investors can only redeem 25% of the investment amount at most each time. This means that domestic investors must wait patiently for the redemption to come in order to carry out the redemption operation.

The directors of the QDLP products agency said frankly that what they can do at present is mainly to appease investor sentiment. For example, the QDLP product investment management team has gone through the subprime mortgage crisis in 2008, and knows how to operate during the US stock crash.

Reporters have learned that at present, several QDLP product investment management teams have made corresponding hedging operations against the global economic impact caused by the spread of the epidemic, including the withdrawal of some funds from the US stock and the allocation of assets to low correlation gold, cross cycle infrastructure bonds, high credit rating local debt, and excellent manufacturing company stocks.

"We are also doing the same thing, as far as possible through the decentralized allocation of assets to ease the impact of the US stock market volatility caused by the chain effect." Wang Qiang revealed. Unlike the QDLP product management team, they focus more on the allocation of funds to offshore renminbi bonds, some undervalued Hong Kong stocks, and the US high credit rating corporate bonds.

He bluntly said that at present, they announce the fluctuation of net value to the high net worth crowd LP every day. Because the net value of the net is less than 1.2% per day, the vast majority of LP appears quite calm.

"Perhaps they have experienced the A stock market up and down, and the current sharp fluctuations in US stocks may not make a fuss for them." Wang Qiang thinks.

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