March 15, 2001, Boston, Lin Qi's home.
Outside the window, the Nasdaq Index was still in freefall. The sell-off triggered by the bursting of the dot-com bubble swept through Wall Street like an avalanche. On television news, the once high-spirited founders of tech companies were now forcing themselves to maintain a facade of composure, saying, "We remain optimistic about the long-term prospects of our companies," but their stock prices had already plummeted by 80%, 90%, and some had lost even a fraction of their former value.
At Lin Qi's home, however, the atmosphere was unusually calm.
In the study on the top floor, several computer monitors were spread out on a large mahogany desk. The K-line charts on the screens had frozen and were no longer moving. Lin Qi leaned back in his chair, holding a cup of coffee that had long since gone cold, his gaze fixed on the thick stack of final liquidation reports.
Sitting opposite him was David Cohen, the chief trader he had poached from Goldman Sachs 'London office six months earlier. David, 34, was one of the best foreign exchange options traders in London. Lin Qi had offered him three times his annual salary plus performance bonuses, but David resigned the very next day. At this moment, he was wearing a wrinkled shirt with the cuffs rolled up to his forearms, his eyes had obvious dark circles, and a layer of stubble had appeared on his chin.
"All short positions have been closed out." David took off his glasses and rubbed his nose, his voice hoarse from several sleepless nights, but still professional. "Boss, after deducting all transaction fees, leverage interest, bridging losses in offshore accounts, and my personal performance bonus, the net profit that ultimately ended up in those 20 overseas accounts is this amount."
David circled the data in the last line of the report.
$4.5 billion.
Lin Qi's gaze swept over the number. He put down his coffee cup and tapped his fingers lightly twice on the table.
He originally expected a profit of around 3.5 billion from this short selling. This was a conservative estimate he made three months ago, and he believed he had factored in the most ideal scenario of adding to his position with unrealized profits. But the figure he is now seeing exceeds his expectations by nearly 30%.
" David, what have you done?" Lin Qi looked up, his tone not one of surprise, but of scrutiny.
David put his glasses back on, leaned forward slightly, and clearly entered his most familiar professional state.
"Dynamic rollover of floating profits."
He paused, as if organizing his thoughts in a way that non-traders could understand, before continuing, "If we had simply held onto our initial short contracts, locking them in at strike prices above 5000 on the Nasdaq, we could indeed have made around 3.5 billion. But the market gave us an opportunity; in this one-sided downward trend, our accounts have been generating huge unrealized profits. It would be a shame not to take advantage of it, so I simply kept reinvesting them back into the market."
Lin Qi did not interrupt him.
"The specific operation is as follows: whenever our old contracts are nearing expiration, I close them out, then use the profits to buy put options with lower strike prices. While taking profits, I simultaneously re-invest those profits, continuously rolling them down. I appropriately increased the leverage. As long as the market doesn't experience a sharp V-shaped rebound that breaks through our liquidation line, this strategy can capture all the trend's gains. It requires accurate judgment of market direction." David said, glancing at Lin Qi, "You bet right."
Lin Qi nodded. He was aware of the risks behind this strategy... If the Nasdaq experienced a sharp rebound during its decline, all contracts with floating profits could be forcibly liquidated instantly. But he wasn't gambling; he knew the trend. This extra billion was a reward for his judgment.
One week later, in Wilmington, Delaware.
In this most mature, frequent, and least concerned about where your money comes from, business registration hub in the United States quietly established a hedge fund management company called " Lin Qi Capital." Registration documents filled the conference room, and the entire process was as fast as walking down a well-trodden road—because it had indeed been trodden countless times.
Lin Qi, as the sole owner and general partner of the company, served as the fund manager. But his first task was not to make deals, but to recruit.
Within three days, Lin Qi Capital quickly assembled a complete management structure: the CFO came from PricewaterhouseCoopers's Boston office, the compliance officer was a former regulator from the SEC's Philadelphia office, and the general counsel was a partner from one of Wall Street's top three law firms. These individuals' combined annual salaries exceeded $15 million, but what Lin Qi needed was their qualifications and reputation. Lin Qi Capital also hired 12 analysts, 4 traders, and 6 back-office operations staff in one go, all of whom signed strict confidentiality agreements and non-compete clauses, with salaries nearly double the current market rate.
Speed is of the essence. By March 21, a Wall Street private equity fund that appeared extremely impressive on paper, with a full complement of staff and a sound structure, was already operating in a high-end office in downtown Boston with a monthly rent of $80,000. Any compliance auditing agency that came to inspect the fund would only find a normally functioning United States- based fund.
The hedge fund's clients were those 20 offshore shell companies located in the Cayman and the Virgin Islands. These companies were registered by local law firms and existed under the name of trust funds. All the legal documents were nested in layers, and even an experienced tax lawyer would need to bypass at least three legal firewalls to extract Lin Qi's name from the documents.
Legally, these shell companies, acting as limited partners and as "overseas institutional investors," compliantly injected a total of $4 billion into Lin Qi Capital's fund pool.
Lin Qi sat in his Boston office, signing the final GP/LP partnership agreement.
If the Internal Revenue Service United States to knock on the door, they would only find a private equity management company with 45 full-time employees, real monthly payroll and operating expenses, managing a fund of $4 billion, with 20 institutional clients from the Cayman and the Virgin Islands as investors.
Everything is legal, compliant, and verifiable.
According to the Wall Street standard "2/20" rule, as the fund manager, Lin Qi could legitimately collect $80 million in management fees every year even if the $4 billion remained untouched in the account. This money would begin accumulating from the day he signed the agreement.
2% may not seem like much, but on a base of 4 billion, it's a gold mine in itself.