Fund-Raising Differentiation: Institutional LP LED Market Clearing

Over the past year, the equity investment industry has staged a "ice and fire song": the RMB fund market, fundraising cliff style down, capital and opportunities to the head office concentration. Under the background of fund-raising differentiation, how can equity investment institutions run together? In the cold winter, how do we share the experience of those institutions that raise large funds? How do LP view the cold spell of raising funds? What changes do they have in the selection criteria of GP?

In November 20th, at the "Ninth China innovation capital annual meeting" sponsored by the southern financial and financial media group and the twenty-first Century economic report, many guests from Nuo Cheng, Yuan Hun Kun, volcanic rock capital, Changchang, HUACHAI capital, mountain capital and Dachang capital discussed the topic.

Xu Qing. Data map

Xu Qing, managing partner of yuan he Chen Kun: the development of equity investment industry from olive type to dumbbell type

Since the second half of 2018, mother funds, GP funds and projects have all experienced "there is no living water at the source".

The result of lack of funds is: first, from the enterprise level, it is the concentration of funds in the middle and late stage of the head project, so that early support enterprises can not get the money. Second, from the perspective of GP, it is a tremendous pressure to raise funds, and the prudence of investment is greatly improved. The good thing is that everyone is doing more meticulous work. The bad thing is that when some enterprises are financing a new round of financing, everyone fails to play. The existing bank loan system lacks support for small and medium-sized enterprises, and the survival environment of enterprises is difficult. New financing can not be completed and is fatal to enterprises. Third, from the perspective of FoF, the raising of FoF fund has never been easy, and the challenge is particularly severe now. At present, most of the funds in the market are functional funds, and there are very few funds available to support GP and good projects.

We take equity investment as a growing industry and explore, support and accompany GP that we think is good at this level and grow together with them to get development opportunities in the equity investment industry.

No matter how the world changes, we all need to know what we can do. Maintaining a stable and sustainable strategy and doing what we are really good at is the core of our response to market changes.

Stability is not static. We will adjust our strategy in combination with the external environment and our own positioning, such as adjusting the combination of industry direction, investment stage and black horse and white horse in the changing market.

We divide the development of RMB equity investment into three stages: 2006 to 2012 is the initial stage, and the characteristics at that time are closer to the capital market. Pre-IPO is the core strategy. In 2013, a large amount of capital poured into the market, and the market entered the 2 stage. The characteristics were closer to the project and the growth of the project. In 2018, the market entered the 3 era, which was closer to the industry. We wanted to see the GP with deep tillage capability in the industry. In the 3 era, we hope to see those teams coming out of the industry and serving the industry. They are more likely to see the forward-looking trend of industrial development, easier to see early projects, and can really help enterprises after investment.

We believe that the industry will develop from olive to dumbbell in the future. In the direction of industrialization, the future GP will go to the early stage and go to A, on the other hand, it will go towards the direction of industrial mergers and acquisitions.

Zhang Suyang. Data map

Volcanic rock capital management partner Zhang Suyang: US dollar GP manages RMB fund path patency

RMB funds and US dollar funds vary greatly from demand. The biggest difference is that the return to the complete fund cycle is different from that for the final return of the fund.

The RMB fund team and the US dollar fund team are not exactly the same in terms of management style and ability portfolio, which determines that they are not exactly the same way to do the project. No one is better than anyone, but who can adapt better in China.

Eight years ago, the whole US dollar fund might be more profitable than the RMB fund. Now the market is not necessarily, even if the RMB fund is only one domestic export, it will be very good.

It is a more smooth way to manage RMB funds by people who have passed the US dollar fund. The wind control is stricter and the quality requirements are more stable. The whole internal investment process of the US dollar fund established in the market is relatively strict and systematic.

There are two ways of fund management. One kind of decision-making power is more concentrated, which means that many risks are placed on one person. One is that partners are more balanced and democratic, but there is a risk of team splitting in this way. The US dollar fund adopts these two ways which have been made, even if the decision-making power is centralized, the degree is not deep; the RMB fund's centralized management by decision-making power is slightly more, of course, it means that the risk of personal commitment is greater.

This year's financing environment, as long as it can melt into the capital is a good company, even if the valuation is higher than the previous round up 20% is also good; for GP, this year can melt into LP money is also a very good GP.

Xie Sijin. Data map

Xie Sijin, managing director of Cheung Kong Development and managing director of Changke Gold: the relationship between the government and the market should be balanced.

Chang's development is set up in the context of state support for innovation and entrepreneurship and the development of sophisticated enterprises. As an ecotypic and platform based company, businesses focus on the three major sectors of capital, assets and production services, providing capital, space and one-stop services for enterprises.

From March to 2017, 34 self managed two parent funds have been co operated, and more than 700 direct and indirect investments have been made. Since the second half of 2018, enterprises have been greatly affected by the economy. There are some difficulties in raising funds from sub funds. We have provided more support and help for children and enterprises, and have done a lot of work.

Under the influence of the new regulation, many funds in the market are currently funded by the government. In the next period of time, the government guidance fund will continue to be an important source of fund raising. As a parent fund, we are constantly trying to expand the channels of market fund-raising.

The government guidance fund needs to balance the relationship between the government and the market. When raising funds, the fund should understand the needs of the government and consider how to meet the demands of the government to guide the development of the industry and attract resources by means of marketization.

Chang development, as the manager of Changping District science and technology industry parent fund, has the nature of government guidance. We will focus on the key industries in Changping District, such as health care, pan TMT industry to carry out the layout of fund investment.

We summed up our investment in 2019, nearly half of which are medical and health funds, including specialized industries such as focusing on medicine, equipment, IVD, precision medicine, etc. The same is true in the pan TMT area, including big data, cloud computing and the Internet.

When we choose GP, we value the past investment performance of the team, and on this basis, we will combine the government's expectations. In the future, on the one hand, we will continue to lay out sub funds in the field of medical health and pan TMT subdivision. On the other hand, we will also cooperate with some leading and key enterprises to set up a fund to lay a layout around the upstream and downstream industries chain.

For us, we should not only reflect the nature of government guidance, but also cooperate with investment institutions in a market-oriented way.

Xu Xiaolin. Data map

Xu Xiaolin, chairman of the company's capital: it is difficult to raise funds because there are too many organizations and too few characteristics.

Agencies generally encounter difficulties, the core reason must be "no money". It doesn't have to be attributed to the new regulation of capital management, bad market and trade war. These are related to our investment but not so much.

Personally, I think the market itself is not short of money, but it is short of money for some organizations. Now too many GP for LP is homogeneity, no characteristics, the more than 20000 most of the GP is unable to enter the list of parent funds.

Therefore, the current fund-raising difficulties are mainly for two reasons. First, institutions do not make money, and second, institutions lack characteristics. Furthermore, the combination of investment institutions and industries is not strong.

Since 2009, I have argued that investment institutions should eventually move towards industry based funds. For example, in the field of health care that we are concerned with, we must have a deep understanding in the field of subdivision.

Therefore, every organization should have its own characteristics and find its core competitiveness. What is the biggest difference between you and other organizations and what the team relies on to make money? This will be the most important point when LP gives you money. If your actual annualized rate of return can achieve two digits, there must be no shortage of money.

Basically, the RMB fund has been in the third stage and the fourth stage has become more and more standardized. I often hear two sad questions in fundraising. One is, are you doing full-time fundraising? Another is, are you still at the scene of the current project?

Take medical investment projects, for example, we look at about more than 300 projects a year and about 40 projects. I see about 20 of the projects at the scene, which account for half of the projects. After starting the project, we start the third parties to make the best adjustments and finish the meeting, and finally invest about 11-12. Our internal requirement is that all core partners of the upper Investment Committee must be present.

Now, during the fund-raising process of the fund, after the potential LP has seen your past performance, you have talked more about the industry investment logic. If you don't know clearly about investment logic, investment strategy and past projects, professional parent funds and institutional investors will not give you money.

So partners spend a lot of time on fund-raising, but fund-raising and investment are closely related. Investment institutions need someone to do the connection of investor relations. The best way is to invest in the front-line investors, and to talk about investment strategy with LP, which is the most benign attitude.

Chen Weihao. Data map

Chen Weihao, capital partners, PE: the opportunity lies in value creation.

Reviewing the development of China's PE industry over the past 20 years, the three stages can be divided into the new period from 1990s to 2007, from 2007 to the past one or two years, from now on.

In the first stage, the investment scale of the Chinese market is very small, and the second stage after 2007 will really enter the golden period of development. In the first half of 2007-2018, there was a large influx of funds in the market, so we can not say that the money in the market has been reduced this year, but in the past 10 years, the market is too hot and too expensive.

When the market is hot, no matter what the project comes out, many investors are going to grab it. The investment institution has no discipline and principle in valuing the valuation, and has formed a market that is catching up with the market. In 2019, investors found that they could not make money because they had paid too much price in the past few years. This year, the market has begun to return to calm and orderly. When we look at the project, we will rationally examine the fundamentals of the enterprise.

Therefore, we can sum up the past ten years as 10 years of rapid development and relative fanaticism. What will happen in the next 10 years? We believe that first we must focus on the fundamentals of enterprises and make more fundamental judgments based on the fundamentals of the enterprise with more time and effort.

From the point of view of concern, investment institutions will also be more focused in the industry, ploughing one or two industries, finding potential leaders and managing teams to polish projects together, and capital will become more and more concentrated.

The money earned from investing comes from several aspects: the first is growth, such as the high growth of China's economy and enterprises in the past 10 years; the second is lever arbitrage, and there are many such opportunities in the past 10 years. The first two opportunities will be less and less in the next 10 years. We must grasp third opportunities, that is, the opportunity of value creation.

PE and VC investment will no longer be just the work of capital. More often, they should go into enterprises to do practical work to help enterprises upgrade. In the next ten years, we must make greater efforts in value creation and truly become partners in enterprises.

Xu Shi. Data map

Xu Shi, founder partner of mountain capital, has to seize the opportunity of "2+20" in TMT investment.

In the history of investment in the US and China, there is a very limited investment value and worth holding for a long time. We will analyze the structural opportunities in the next 10 years. Our conclusion is "2+20".

In the TMT field, only 1-2 tens of billions of dollars are produced every year, and 20 companies with more than 1 billion dollars are born. There are more than 2 PE/VC institutions registered in China, several times the number of the United States. From the perspective of the whole market, whether RMB or US dollar is not really short of money, whether the smooth financing is based on whether it can prove its value and deliver outstanding investment performance to LP.

In the investment practice of mountain line, we insist on being a "sniper" and doing value investment on the real track. We invest less than 10 cases a year, with a single investment ranging from US $3 million to tens of millions of dollars.

In the process of industry reshuffle, the team that can bring long-term returns to the market can survive. The market is getting cold, the Matthew effect is also very obvious, but these effects on us are not big. We will also advance effectively according to the existing layout and rhythm according to our investment rhythm and principles.

The investment cycle should be considered, and what attracts me is uncertainty. We must do real thinking and research in the big trend and direction, and keep a keen observation. Only when we go to the front to do research and industry comb can we find a good project.

There are great opportunities for structural migration in some industries in China, including opportunities brought about by the evolution of technology such as ABCD, 5G, AI and China's vast market. In the future, new opportunities will emerge when new technology infrastructure is built up. If we want to maintain observation, maintain real-time evolution and self iteration, we will be able to earn the next big opportunity.

Cao long. Data map

Cao long, director general of investment management, 2019: the market can be described as "high mountain and small month."

For China's institutional investors, 2019 is a difficult year. It is necessary to invest continuously under all kinds of pressures, and to deal with various internal and external risk factors carefully. At the same time, the signal coming from the city scene is not very optimistic, and the income continues to decrease, the quality assets are scarce, and the pressure of allocation is increasing. On the other hand, although the whole is in the downlink cycle, with the gradual release of systemic risk, the investment market bubble has been slow-release, the price of some assets has declined, the safety boundary has been raised, and managers and assets with value are more obvious.

To sum up, the market summary and strategy outlook in 2019 can be summarized as follows: Yamadaka Tsuki is small. That is to say, difficulties, expectations, bubbles and values are obvious.

In terms of the allocation of domestic assets, investors will face a normal market opportunity in the future, that is, the normalization of asset shortage. On the one hand, the rate of return on investment of traditional investment will gradually decrease, which can not meet the overall income requirement, and the investment ability of stocks and bonds and other categories will be further improved. On the other hand, institutional investors are bound to benefit from illiquid alternative assets, namely, high risk and long term benefits.

In terms of the overall configuration method, the organization should make more careful decisions on the strategy of noise - active selection, aiming at building a portfolio for the next cycle.