(Bloomberg) – Long before running the world’s top performing hedge fund, Qian Yongqiang ran China’s largest online dating service.
The Yale graduate spent hours tracking down attractive users with suspicious profiles, scouring accounts, and deleting thousands of scammers to improve the site’s authenticity and ensure its success.
Now he’s betting that the same attention to detail and high returns will help his Singaporean company grow into an asset management giant. According to Eurekahedge data, QQQ Capital Management grew by 275% between January and September, making it the world’s best hedge fund. According to QQQ, assets under management rose to around $ 1 billion last month, with most of the money coming from Qian.
The profits come with concentration risks that many fund managers would avoid: QQQ has invested more than a third of its assets in Chinese education companies. While these stocks have risen sharply this year, concerns of government raids and allegations of accounting fraud have plagued them, and one of them has fallen in recent weeks due to analyst downgrades.
“When we invest, we know everything about an industry, its five most important employees, its personality, its weaknesses, its size and everything about it,” Qian said in an interview.
Qian’s experience with the Chinese education system is profound. Qian was born in 1972 – the same year that US President Richard Nixon visited China – and grew up in the midst of the rapid economic growth that followed the Cultural Revolution. After graduating from North China University of Technology, he joined a teaching center that specializes in helping students prepare for universities abroad. Then he made the leap himself and earned an MBA from the Yale School of Management in 2000, where he now sits on the Greater China Board of Advisors.
Upon returning to China, Qian was lured back into the teaching center and named a co-founder as it expanded. It later became the New Oriental Education & Technology Group, a giant in space with a market capitalization of nearly $ 26 billion on the New York Stock Exchange.
After leaving New Oriental, he helped build and sell mobile content provider Atop Century Ltd. and bought a significant stake in the online dating service Jiayuan.com. But when Beijing’s haze worsened and his children developed asthma, he moved to Singapore in 2013.
“I wanted to start an internet company in Singapore, but it couldn’t be done because you couldn’t find enough talented technicians,” he said. “The only thing I could do was the finance industry.”
After running his own account for five years, Qian, 48, turned pro in 2018, using QQQ with $ 100 million of his own money. That year, the fund returned nearly 40% despite only running three quarters. In 2019, it increased by 31%, outperforming the S&P 500 index in both years. The fund received an upgraded license from Singapore in August that lifted an S $ 250 million ($ 183 million) cap.
QQQ trades almost exclusively in US-listed stocks, so Qian gets up at lunchtime and eats before training in Singapore’s Botanical Gardens. The rest of the day is spent meeting friends and family before starting work at 8 p.m., 90 minutes before the New York Market opens. For the next eight hours, he lives online, recording news and company reports, searching social media, and trading stocks.
Like other hedge funds, his team of six performs numerous alternative data analyzes. They often trade in Tesla Inc. stock to review satellite images of auto lots and shipping manifests. QQQ also has people take tutoring classes in China to measure attendance and buy calls and put on the indices to hedge the risk.
Qian says his advantage is the entrepreneurial experience of running businesses, adding that every business QQQ relies on spans thousands of hours of research – giving them the confidence to make massive bets on select areas. The company currently has around 55% of its assets in cash ahead of the US elections and is betting that the economic negotiations will fail and upset the markets. The S&P 500 fell four out of five sessions last week, hitting a five-week low.
The focused calls have paid off so far. Over the past year, New Oriental Education is up 31%, while GSX Techedu Inc. has almost quadrupled and the TAL Education Group is up 55%.
“The superior performance is largely due to good stock selection in the Edu-Tech space,” said Eurekahedge chief analyst Mohammad Hassan in an email, noting that the fund has posted a return of 444% since June 2019. So far this year the Eurekahedge has made a return. The Long Short Equities Hedge Fund Index is up 4.7%.
There are many risks associated with betting. TAL admitted in April that an employee may have forged sales contracts. GSX announced last month that it was being investigated by the US Securities and Exchange Commission. Regulators called for 2017 financial reports following reports from short sellers like Muddy Waters. When Credit Suisse Group AG – one of the banks that floated GSX last year – downgraded the company for sale on October 21, the stock fell 31%. The recent declines could push QQQ down from # 1 among hedge funds.
“Diversification can be two-way. If you are right about your investment thesis, you can potentially make a lot of money. But if you are wrong, there is one big downside,” said Melvyn Teo, finance professor at Singapore Management University. The concentration could also deter blue-chip investors from QQQ funds, as they tend to prefer greater diversification, Teo added.
A QQQ spokesperson said there had been a “small drawdown” recently but the fund’s positions were hedged and it was still doing well.
Qian declined to comment on allegations made against the education companies, but said he trusts many of the key executives and understands the basics. QQQ is open to clients about the risks and sometimes rejects money from investors who it believes cannot handle the potential losses.
“I haven’t given my team any goals for fundraising. We’re only two and a half years old and track record is the most important thing,” he said.
For more articles like this please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
© 2020 Bloomberg L.P.