So here are the latest numbers from PaiPaiWang on China's private index-enhancement funds. For the first five months of 2026, the average excess return across 1,251 funds landed at just 3.07%. Compare that to 11.92% in the same period last year—a pretty steep drop by any measure.
But the bigger headline isn't the overall decline; it's where the remaining alpha is ending up. The gap between the largest and smallest shops has widened dramatically.
Breakdown by AUM tier:
- Over ¥10 billion: 5.79%
- ¥5–10 billion: 4.47%
- ¥2–5 billion: 1.30%
- ¥0.5–1 billion: 0.18%
- Under ¥0.5 billion: 0.91%
That's a spread of more than 5 percentage points from top to bottom. A year ago, the difference between the >¥10B group and the ¥0.5–1B group was barely one point—now it's 5.6. That kind of shift in just 12 months is worth paying attention to.
What's behind this concentration? Two main factors stand out.
First, this year's A-share market has been heavily tilted toward a handful of hot sectors and stocks. Quantitative enhancement strategies rely on spreading bets across a broad universe to capture mispricings—but when the action is concentrated in just a few names, that broad-net approach loses much of its edge.
Second, the industry is dealing with a serious case of copycat syndrome. Most shops are using similar data feeds, factor sets (reversal, low vol, small-cap, and the usual suspects), and risk models. When everyone is fishing in the same pond with the same gear, the mispricings get arbitraged away faster, leaving less room for excess returns.
The bigger players, with their deeper research benches, better hardware, and faster model iteration, have proven more resilient in this environment. Smaller firms, on the other hand, often struggle with outdated models and limited R&D bandwidth.
So the Matthew effect is alive and well in quant land. Alpha hasn't vanished—it's just moved uptown, and the entry ticket is now too steep for the little guys.
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