Tucked alongside the rumbling I-95 highway overpass that spans the Norwalk River in Connecticut, about an hour’s drive from Manhattan, is a small office building in the distinctive shape of an octagram.
Inside, you’ll find the usual hodgepodge of homegrown businesses: a marine-parts supplier, a local newspaper, a U-Haul rental facility, and so on. But up on the third floor, in suite 3G, one of China’s financial heavyweights has quietly teamed up with a star Wall Street bond trader to make big bets in the U.S. Treasury market.
The outfit goes by the somewhat unwieldy name of CCSZF Management. The firm is backed by a Citic Group unit, which supplied the seed money, while Industrial & Commercial Bank of China Ltd. was brought in to provide financing in return for a cut of the profits. The key man behind it all is Stephen Siu, who spent two decades helping to pioneer arbitrage strategies for Treasuries on the proprietary trading desk at Greenwich Capital Markets, which later became part of Royal Bank of Scotland Group Plc. Former colleagues describe Siu as one of the savviest traders around, with a keen eye for exploiting minuscule price gaps between the bond and futures markets.
“He is the real deal,” said David Ader, who worked with Siu at Greenwich in the mid-2000s and has been the top-ranked U.S. rates strategist in Institutional Investor’s annual survey for 11 straight years.
The new firm’s modest digs might not look like much to the tony hedge-fund set in Greenwich or Westport. But in some ways, the story of Siu and his Chinese financiers speaks to how post-crisis regulations designed to limit risk-taking have fundamentally altered the landscape in the $13.5 trillion market for Treasuries to an extent that few could have anticipated. What’s more, it reflects yet another way that China’s financial clout is making itself apparent in the most important debt market in the world.
CCSZF’s business model underscores two particular changes, which have created greater arbitrage opportunities in Treasuries, while at the same time limiting the number of traders who can pursue them. The first is the rise of futures trading as bouts of bond-market illiquidity increase. The second has to do with access to financing and the fact that fewer banks are providing it.
For a QuickTake explainer on leverage and capital requirements, click here.
CCSZF combines the name of Citic Capital, an asset manager for one of China’s largest state investment companies, with the last names of its three main partners -- Siu, Jim Zhao and Christian Fox -- all Greenwich alums who also own minority stakes in the firm.
Siu’s connection to Citic Capital, which provided $45 million of CCSZF’s $50 million in capital, is through Chief Executive Officer Yichen Zhang. Both went to MIT before joining Greenwich Capital in 1987. And after a brief stint at Brevan Howard Asset Management, Siu ran a firm called Westport Trading Partners.