Liang Wenfeng: Rise of a Black Swan


Statistical mathematician Nassim Taleb, in his seminal work, The Black Swan, defines ‘Black Swan moments’ as highly improbable events with significant impact that are often rationalised with hindsight. In 2008, the global financial meltdown, a Black Swan event that began in the U.S., wiped out trillions of dollars, causing traders to scramble to fulfil margin call requests. Algorithmic trading, particularly high-frequency trading, was identified as a contributing factor to market volatility during the crisis.

As the effects of the financial crisis hit global markets, far away across the Pacific Ocean, 23-year-old Liang Wenfeng, along with his classmates, was gathering data on financial markets and macroeconomic indicators with a goal of exploring the full potential of algorithmic trading.

Finance wasn’t the first industry that piqued Mr. Liang’s interest in testing emerging technology and algorithmic frameworks, but it became his domain at that point in time. Despite challenges and setbacks, Mr. Liang remained steadfast in his belief that machine learning (ML) and artificial intelligence (AI) had the potential to revolutionise the world fundamentally. He was proved right when an AI language model launched by his startup DeepSeek disrupted the global AI landscape and triggered a meltdown of chip stocks worldwide last week.

Mr. Liang pursued his master’s in information and communications engineering at Zhejiang University before relocating to the southwestern Chinese city of Chengdu. Instead of securing a job at prominent tech firms like his peers, he ventured into an uncharted territory, determined to leverage ML and AI in the rapidly evolving finance landscape. With a few Zhejiang University alumni by his side, Mr. Liang founded High-Flyer, a quantitative hedge fund, in 2015.

High-Flyer quickly gained recognition, amassing 20 billion yuan ($2.8 billion) in assets under management (AUM) within a few years. The fund’s success can be attributed to its adoption of sophisticated algorithms to enhance trading strategies. By harnessing large datasets and optimising decision-making processes, High-Flyer achieved remarkable returns.

Technology remained at the heart of the firm’s operations. Under Mr. Liang’s leadership, High-Flyer invested in high-performance computing resources and assembled a dedicated team of engineers and data scientists. This strategic focus on technology, coupled with the firm’s local expertise, proved pivotal in a market where understanding local dynamics was paramount. While foreign hedge funds also possessed superior technology, High-Flyer’s localised knowledge enabled it to outperform its competitors in the Chinese market.

By 2019, High-Flyer had achieved remarkable success, ranking as the No. 1 stock hedge fund, according to data provider Shanghai Suntime Information Technology.

Moreover, the fund’s ability to swiftly adapt to market fluctuations enabled it to capitalise on inefficiencies within the Chinese market. Industry experts closely monitoring the Chinese market at that time observed that the combination of high liquidity and inefficiencies in the Chinese financial system created an ideal environment for systematic trading strategies.

Unorthodox hiring

Mr. Liang’s success isn’t solely attributed to his firm’s sophisticated algorithms and deep knowledge of the local market. He also set himself apart from other local funds in his approach to talent acquisition.

He challenged traditional hiring practices in the tech and finance industries by prioritising creativity, passion, and basic skills over work experience. He actively recruited younger workers, believing less experienced employees are more likely to innovate and think critically about solving problems.

Mr. Liang viewed experienced professionals as rigid in their approach, quickly recommending established methods, while inexperienced workers to be more willing to explore multiple solutions and adapt to current challenges. This philosophy extended to his hiring strategy of bringing diverse backgrounds, particularly those from literary fields, into engineering teams.

Unlike most founding teams of Chinese quant-investing funds, who have backgrounds in Europe or the U.S., Mr. Liang’s team at High-Flyer is entirely driven by local talent. His fund was founded by a team of local professionals who grew independently.

Within six years of its establishment, High-Flyer achieved remarkable success, becoming one of the top four quant-investing funds in China with an AUM of 100 billion yuan ($13.9 billion). This achievement was particularly noteworthy considering Mr. Liang’s outsider status in the hedge fund world.

The success can be attributed to his ability to thrive in challenging circumstances. From the financial crisis of 2008, he demonstrated resilience and continued to grow his business. On August 24, 2015, during the launch of High-Flyer, the Shanghai Composite Index experienced a significant decline of 8.5%, marking its worst single day drop in eight years. This event was dubbed “Black Monday” by the Communist Party of China’s mouthpiece, People’s Daily.

During the terms of both Donald Trump (2017-21) and Joe Biden, Chinese firms, including High-Flyer, faced restrictions on exports due to export controls. These policies curtailed access to crucial semiconductors, particularly Nvidia GPUs, for Chinese companies.

Despite these challenges, Mr. Liang’s expertise in quant-investing and his sophisticated technology enabled him to build a billion-dollar empire. However, in 2023, the $200 billion hedge fund industry came in the crosshairs of the Chinese finance regulators. As Beijing sought to restore retail investor confidence and mitigate a substantial $4 trillion sell-off in stocks, fast-growing quant funds, such as High-Flyer, became targets of regulatory attention.

These developments prompted Mr. Liang to pivot his focus towards AI. In the same year, he launched DeepSeek, the AI lab focused on building large language and reasoning models. The company’s DeepSeek-R1 model has emerged as a rival to U.S.-based OpenAI’s advanced reasoning model, o1.

Long journey

Although DeepSeek was officially established in 2023, Mr. Liang’s preparation for this journey began long ago. He has been making AI investments for over seven years, from around the time the transformer architecture inspired OpenAI to build their generative pre-trained (GPT) models.

As far back as 2017, the DeepSeek founder began expanding the scope of research in AI algorithm and software. His team solved the single-machine training failure problem with a large-scale computing power solution and won the Golden Bull Award for it in Malaysia the following year. Subsequently, in 2021, his fund spent 1 billion yuan ($139 million) to build an AI supercomputer, Fire-Flyer 2, to handle complex AI tasks. The system was built with super-fast accelerator cards and a network connection that could transfer data at 200 gigabits per second.

Under Mr. Liang’s leadership, the quant fund had already amassed an impressive collection of computational resources, including 10,000 Nvidya A100 GPUs, positioning it as a dominant force in the AI field. According to some reports, High Flyer is the only hedge fund among the five Chinese companies with more than 10,000 GPUs. The other four are all Internet giants. Mr. Liang’s impact on AI research is profound and multifaceted. DeepSeek has injected fresh energy and perspectives into the field, challenging prevailing paradigms and opening new avenues for breakthroughs in understanding human cognition through AI.

In his book, Mr. Taleb notes, “We tend to ‘tunnel’ while looking into the future, making it business as usual, Black Swan-free, when in fact there is nothing usual about the future.” Mr. Liang, to those viewing the future through a tunnel, is a Black Swan formed through adversity that happens to have opened the door to an unexpected, new chapter in AI research, and possibly in quant-investing.



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