After the 1987 stock market crash on Wall Street, a rumor circulated among hedge funds that a Hong Kong-based consortium was looking for a well-performing hedge fund. It was said that this consortium had nearly a billion dollars in cash.
This news caused a stir in the entire hedge fund industry, with many major funds, including Quantum Fund, investigating the authenticity of the information to secure investment capital.
For hedge funds, management fees and performance bonuses are the foundation of their survival. The larger the fund, the more money it can earn.
Typically, when capital is invested in a hedge fund, a much stricter contract than that of a public fund is signed. One of the terms is the 2-20 rule, which means a 2% management fee and a 20% cut of the excess returns are charged annually.
However, these conditions are based on the fund's performance being better than the previous year. If the fund does not generate returns in a given year, it will not receive any fees according to the agreement. If there are significant losses, investors may even demand redemption.
Investors are the most pragmatic!
This news was released by the investment banking department of HSBC at Zhong Shi's instruction. When Zhong Shi deposited a full 100 million Hong Kong dollars into an account opened at HSBC, the bank's astute client manager immediately came to him, shamelessly introducing the bank's wealth management services.
The Hong Kong stock market was one of the most severely affected globally. On the morning of the 20th, after consulting with officials from the Financial Secretary and the Monetary Authority, the chairman of the Hong Kong Stock Exchange announced a four-day suspension of trading, with the next trading session scheduled for the 26th.
This decision was made to allow investors time to digest the panic caused by the U.S. stock market crash and to consider the settlement process.
However, when the market reopened on October 26th, the Hong Kong stock market still suffered a severe crash, plummeting by over a thousand points in a single day, losing more than 30% of its value, the largest decline in the history of the Hong Kong stock market.
Zhong Shi and Liao Chengde's short positions in futures contracts naturally made them a fortune.
By December, nearing the settlement date, Liao Chengde's account had earned over 100 million Hong Kong dollars. Zhong Shi, on the other hand, had made nearly 1 billion Hong Kong dollars from his 10,000 short positions.
One billion Hong Kong dollars is equivalent to less than 200 million U.S. dollars, which is insignificant compared to what Zhong Shi had earned in the U.S. market. Even so, it was enough to make the Liao family bow in reverence.
Liao Chengde regretted not holding more short positions, knowing the extent of the market decline. However, there is no such thing as a regret pill. He should be satisfied with the hundreds of millions in profit.
Following Zhong Shi's advice, Liao Chengde converted the cash into stocks of large real estate companies and banks in the Hong Kong stock market, and invested nearly 20% of the funds in property purchases.
Zhong Shi did the same, converting most of his profits into yen and investing in the Japanese capital market, with a smaller portion invested in the Hong Kong real estate market.
With the stock market crash, Hong Kong's property market was like a frightened bird, with property prices falling rapidly, making it a good time to buy at the bottom. The Hong Kong property market, at certain times, experiences fluctuations closely tied to the stock market.
Liao Chengde, who was buying properties everywhere, was dubbed the "Real Estate King" by the media. This title was more fitting for the bosses of large real estate companies. However, Liao Chengde had a famous son in the entertainment industry, and his large-scale property acquisitions during the economic downturn made him particularly noticeable, earning him this title.
In fact, most of the properties Liao Chengde bought were for Zhong Shi, but outsiders were unaware of this and attributed all the properties to Liao Chengde. The Hong Kong media roughly calculated that Liao Chengde had acquired over 300 million Hong Kong dollars worth of properties across several islands, including entire floors of buildings.
As for Liao Xiaohua, he changed his usual ways and joined an international accounting firm, working diligently as a "leisure worker," meaning he worked not for a living but for leisure.
However, his connection to the entertainment industry remained, and he was still occasionally photographed with popular female celebrities.
These are all later developments.
When the HSBC client manager heard that the money was earned in the Hang Seng Index market, he laughed it off and stopped aggressively promoting the bank's wealth management services. People who can make such huge profits in futures trading would not be interested in the few percentage points of annual returns offered by the bank's wealth management department.
After HSBC spread the news in the North American capital market, many North American hedge fund managers traveled thousands of miles to Hong Kong, hoping to get a piece of this massive capital.
By this time, Zhong Shi had already returned to the mainland, playing the role of a good child at home, leaving all Hong Kong affairs to Zhong Yi. Naturally, he had left a list of the famous funds from the future, along with the corresponding investment amounts.
One day, two white Americans arrived, one of whom was quite old, with white hair and a beard. The other was a middle-aged man in his forties, with a weary and anxious face.
If someone from the American mathematics community were present, they would recognize the older man as James Simons, a former Fields Medalist and one of the mathematical geniuses. In recent years, James Simons had left academia and entered the business world, starting a hedge fund.
Renaissance Technologies, which had hired a large number of non-financial professionals such as mathematicians, physicists, and cryptographers, had been operating for several years with decent annual returns. However, this year, it faced losses, and many people left the company with their cash.
James Simons felt desperate and even considered dissolving Renaissance Technologies. However, when he heard that a consortium in Hong Kong was looking for investment opportunities, it was like a ray of light in the darkness, and he rushed to Hong Kong.
When he met the young, refined potential investor, Simons felt a tightness in his heart, thinking it was a lost cause. To his surprise, Zhong Yi, after a brief conversation, readily invested 50 million U.S. dollars in their fund.
Zhong Yi was simply following Zhong Shi's instructions to invest in Renaissance Technologies. What he didn't know was that he had missed the best opportunity to enter the Medallion Fund.
The Medallion Fund was a fund exclusively for internal personnel of Renaissance Technologies, managing only the assets of insiders. However, in that year, Simons had considered accepting external funds. He was pleasantly surprised when the investor did not haggle over the contract but signed it after a cursory look.
This way, Zhong Shi's funds regrettably missed the opportunity to join the Medallion Fund.
Hedge fund managers from all over the United States came to Hong Kong one after another. Some left disappointed, while others left elated.
Among them, Zhong Yi unexpectedly met an old acquaintance, Ray Dalio of Bridgewater Associates.
Ironically, when the two met, Dalio did not recognize the well-dressed young man and kept praising his fund's high returns.
Zhong Yi, suppressing his laughter, interrupted Dalio and mentioned their encounter in Beijing three or four years ago. Only then did Dalio realize that this investor was the student who had hosted him in China.
In just three years, the former young man had become a sought-after investor in the hedge fund industry, a transformation that even the experienced Dalio found astonishing.
With Zhong Shi's indirect guidance, Dalio had expanded Bridgewater's managed funds to over 1 billion U.S. dollars through public relations with the World Bank and General Electric, and through promotions in Japan.
Following Zhong Shi's instructions, Zhong Yi invested 200 million U.S. dollars in Bridgewater, making this investment the largest individual share.
Dalio was overjoyed and left Hong Kong happily after a brief conversation.
Zhong Shi's funds in the U.S. amounted to about 900 million U.S. dollars, which, after deducting capital gains tax, left around 800 million U.S. dollars. After investing in the U.S. capital market and buying many undervalued stocks, at least 700 million U.S. dollars remained in cash.
Quantum Fund also sent representatives, though not Soros himself. Zhong Yi readily invested 100 million U.S. dollars in the fund.
Many famous hedge funds from the future either came in person or sent representatives. Zhong Yi, following Zhong Shi's instructions, allocated the funds to these hedge funds in different proportions.
Tiger Fund, Caxton Associates, Tudor Investment, Moore Capital Management, Farallon Capital Management, and even the founder of the yet-to-be-established Soros Fund Management, David Shaw, all came, and Zhong Yi invested in each of them.
Over two months, the 700 million U.S. dollars found their homes, completing Zhong Shi's largest layout in the hedge fund industry.
In fact, many hedge funds close to new investors once they reach a certain size, making it difficult to enter. Only during crises do these funds open up, as they fear large-scale redemptions from investors.
At such times, investors willing to inject capital have significant leverage for negotiation, but Zhong Shi did not do this. He knew that these hedge funds would have high returns over the next few years or even decades. By this measure, he had already made a profit.
Now, it was time for him to take a leisurely break. The next such opportunity would come in the increasingly bubble-ridden Japanese market.
By the end of 1987, all matters were settled, and Zhong Yi completed his first semester at the University of Hong Kong. He returned to his hometown in the north, where the temperature was below zero, to celebrate the New Year!