DeepSeek Founder’s Quant Fund Bets Big on China Tech IPOs

DeepSeek, the AI research lab that catapulted Chinese artificial intelligence into the global spotlight last January, has historically been fueled by High-Flyer Quant, the quantitative hedge fund founded by Liang Wenfeng. For years, High-Flyer leveraged sophisticated AI and deep learning algorithms to navigate the complexities of stock trading, an expertise that provided DeepSeek with crucial early-stage funding and the substantial computing power necessary for its ambitious development. Now, however, DeepSeek is charting a new course, seeking external investment to finance its escalating growth trajectory. Concurrently, High-Flyer has strategically positioned itself to capitalize on the burgeoning Chinese hard-tech IPO market, securing allocations in a range of high-profile companies from cutting-edge chip manufacturers to pioneering robotics firms.

Pre-IPO placements, the acquisition of shares before a company begins trading publicly, can unlock significant paper gains for hedge funds, particularly when these highly anticipated stocks experience robust debuts. Yet, the recent market turbulence in AI and semiconductor stocks has underscored the inherent risks, exposing funds like High-Flyer to considerable drawdowns. As DeepSeek’s capital requirements and computational demands escalate, its continued reliance on High-Flyer, whose revenue streams are becoming increasingly volatile, may prove untenable, according to Ciel Qi, a research analyst at Rhodium Group. “Beijing’s strategic imperative to list nationally important technology firms has created substantial pre-IPO investment opportunities for funds,” Qi observed. “Maximizing returns within China’s market increasingly necessitates aligning investment strategies with Beijing’s overarching technological agenda.”

Neither High-Flyer nor DeepSeek responded to requests for comment.

CNBC’s analysis of IPO data reveals that affiliates of the quantitative fund, Zhejiang High-Flyer Asset Management and Ningbo High-Flyer Quantitative Investment Management, have secured private placements in key Chinese technology enterprises. These include CXMT, a leading domestic memory chip manufacturer, and Unitree Robotics, a prominent player in the robotics sector. Their portfolio also extends to companies involved in advanced chip packaging, electronic components, and renewable energy solutions.

CXMT emerged as the most significant allocation for the two funds, with a combined investment of approximately $26 million (175 million yuan) in pre-IPO shares, according to data compiled by Shenzhen PaiPaiWang Investment & Management, a consultancy specializing in tracking China’s private funds. The memory chipmaker witnessed a remarkable surge, climbing over fivefold on its Shanghai debut in July, swiftly becoming China’s most valuable technology company, and has since appreciated by an additional 20%.

Unitree’s initial public offering attracted investment not only from Liang’s funds but also from DeepSeek itself. The two High-Flyer funds were allocated a combined $5.8 million in shares. Separately, DeepSeek secured a strategic stake of 2.31% in the offering as one of nine strategic investors, committing to a 36-month lock-up period, a significantly longer commitment compared to the 12-month lock-up accepted by most strategic backers.

Unitree experienced a dramatic 460% surge on its Shanghai IPO day last week, though it has since experienced a pullback of approximately 27%. This recent downturn in Unitree’s stock performance has intensified scrutiny on Beijing’s strategies for fostering emerging strategic sectors without inadvertently fueling speculative bubbles. The global AI chip downturn in July reverberated through momentum-driven quantitative trades, resulting in losses across eight of High-Flyer’s nine managed products, as reported by state-backed media. However, performance metrics for Chinese quantitative funds have shown signs of recovery in August.

Data from PaiPaiWang indicates that nearly half of the High-Flyer affiliates’ allocations this year have been directed towards the semiconductor industry and its associated supply chains. Beyond CXMT, these investments encompass SJ Semiconductor, a specialist in advanced packaging, and various companies involved in chip equipment and testing.

While High-Flyer’s pre-IPO selections have largely mirrored China’s national technological priorities, industry experts suggest that the fund’s fundamental objective remains the pursuit of maximum investment upside. Ke Zong, a portfolio manager at a Shanghai-based hedge fund, noted, “DeepSeek’s founding team, including Liang, are traders at heart and are inclined to chase maximum upside.”

Sigrid Wang, a tech analyst at Hutong Research, differentiated the two entities’ motivations, stating that High-Flyer approached Unitree as an investable asset, whereas DeepSeek engaged with the humanoid robot maker as a strategic partner. “There’s a genuine distinction between the quantitative funds seeking returns and DeepSeek selectively utilizing its corporate balance sheet to cultivate strategic relationships within the future AI ecosystem,” Wang explained.

As Beijing actively seeks to channel private capital into AI, robotics, and other priority sectors, these investments are increasingly viewed as a “financial bonus for playing a role in boosting China’s broader tech sector,” commented Kyle Chan, a fellow at the Brookings Institution. The implicit endorsement from Beijing has also served to enhance DeepSeek’s and Liang’s market access, opening doors to highly sought-after public listings.

“Having influential backers like DeepSeek or Liang’s quantitative funds can serve as a powerful signaling mechanism, drawing significant attention and lending legitimacy to an IPO, thereby potentially boosting its valuation,” Chan added. Wang from Hutong Research further elaborated that policy support not only bolsters a company’s commercial prospects but also mitigates some of the inherent risks associated with long-term technology investments. While Liang’s government connections have demonstrably strengthened, his technology investments appear to be a strategic convergence with Beijing’s priorities rather than a result of direct state directives.

DeepSeek’s decision to open its doors to external funding for the first time this year signals the escalating capital demands inherent in the artificial intelligence sector, coupled with mounting pressure to retain top talent amidst fierce competition. “DeepSeek has become too large and capital-intensive to remain merely a side project of the quantitative fund,” observed Wang, highlighting that DeepSeek’s initial funding round of 50 billion yuan ($7.4 billion) represented more than 60% of High-Flyer’s total assets under management, which stood at 80 billion yuan.

The AI lab is reportedly in advanced discussions with investors to raise an additional $7.4 billion in a second funding round, which would value the company at a staggering $74 billion, according to reports from The Wall Street Journal. Investors participating in the first round included prominent entities such as Monolith Management, Tencent, JD.com, NetEase, and battery manufacturer Contemporary Amperex Technology. This subsequent funding round is anticipated to conclude by the end of August. Liang had briefly paused fundraising efforts in July following the leak of remarks made during an investor meeting, which included observations about China’s AI capabilities lagging the U.S. primarily due to constraints in computing resources.

Wayne Shiong, managing partner at Argo Venture Partners, suggested that investors are positioning for a future DeepSeek listing on the mainland, a move that could help the startup retain its senior engineering talent by offering substantial financial incentives. As of July, Liang had ascended to become the world’s wealthiest AI founder, according to Bloomberg, a position that grants him significantly greater control compared to many U.S. founders who have diluted their ownership stakes to secure vital funding for computing infrastructure.