CHINA’S top quant hedge fund has apologized to investors after a record slump in performance, highlighting challenges facing the industry following a period of breakneck growth.

The recent drawdown, caused in part by mistimed trades, was the biggest in the firm’s history, Zhejiang High-Flyer Asset Management said in a statement late Tuesday on its Wechat account. The investment manager didn’t give a number for the decline.

“We feel deeply guilty,” the Hangzhou-based firm wrote. High-Flyer managed about 90 billion yuan (US$14.1 billion) as of September, making it the largest quant hedge fund in China.

Assets have since dropped notably, a company representative said, without giving an exact figure. While the majority of its clients still made money this year, some have seen losses on paper and returns “failed” relative to the index, according to the statement.

High-Flyer’s stumble is the latest sign that China’s quant hedge funds are slowing down as regulatory scrutiny intensifies and some of the US$219 billion industry’s most popular trades become increasingly crowded.

A growing number of players are now restricting inflows or dialing back expansion plans, after a boom that saw assets under management at algorithm-driven funds jump by fivefold over the past two years.

High-Flyer said its artificial intelligence didn’t time trades well even though the selection of stocks was fine in terms of long-term value. The models are inclined to take on more risk to seek higher returns when markets shift wildly, which deepened declines.

The company said computer-driven trading firms have expanded their assets too quickly, leading to similar trading strategies that make operations more difficult. High-Flyer is adjusting its models, controlling its size and lowering the concentration of stock positions, it said.

Returns from so-called enhanced index products, a popular segment of quant funds in China, have dropped since mid-September and turned into losses, according to a report by analysts at China Merchants Securities Co. published Nov. 16. They saw a “significant” negative correlation between assets under management and excess returns. Assets managed by private quant firms jumped 60 percent this year through Sept. 30, according to Citic Securities Co. estimates. (SD-Agencies)