Shanghai-based Cougar Asset Management says China is back on the map for investors, with its $150 million quant fund expected to grow to $200 million in AUM by the year's end.

Its Cougar Fund, which claims to be China’s first programmatic trading strategy, uses a software-driven trading platform to invest in mainland-related stocks and multinational large-cap companies listed in the US, Hong Kong and other Asian markets. 

It holds positions in about 100 companies, most of which are either based in China or are directly impacted by the country’s growth, and shorts using index funds. Since its start as a managed account in 2005, Cougar has had an annualised return of 44.31%, with no down year. It returned 23.97% in 2010.

The fund’s software trading system was developed by Cougar fund manager Bill Guo, a China-born computer software engineer who has worked at Citrix Systems and Microsoft in the US. His busy IT career left him with little time to oversee his personal stock investments, “so I started a program to manage the portfolio for me”, he recalls.

The system proved canny, leading to an allocation of seed capital which enabled Guo to refine the platform.  He quit his programming job and was running $10 million in assets when it opened to external investors as a Cayman-registered fund in August 2008, which, as Guo points out, “was the worst time to start a fund”, given that the sub-prime crisis was rapidly unfolding in the US.

Cougar nonetheless returned 42.88% in 2008 with only two down months, which Guo attributes to the fund’s low correlation to the market.

He describes the strategy as a “programmatic trading fund with a human overlay”. It uses proprietary trading models to research and analyse stocks, with data fed to Cougar’s in-house computer software, which automates the trading process. The trades are closely monitored by Guo.

Cougar has a primarily Asian client base with a growing amount of capital coming from Europe and the US. Investors include funds of funds, insurance firms, and high-net-worth individuals, according to Guo.

While the strategy is capable of handling up to $1 billion, Cougar is targeting steady asset growth, rather than rapid expansion, as the trading program needs to be adjusted as the AUM grows, notes Guo. The firm also has a small operation in Seattle, where it is developing and supporting the platform’s software development.

“We are not actively raising capital,” he says, adding that many of Cougar’s investors are referred to the firm by word-of-mouth.