Cheng Zhanglun, The Elite Investor 30, Dialogue Hua Ping Investment: "Holding" Usher In A Window Period, PE Investment Into The Era Of Comprehensive Competition.

Huaping investment, holding 9 billion US dollars in dry powder, started the era of "holding and joint holding" in the Chinese market.

Cheng Zhanglun, chief investment officer of Huaping investment in China, said that China's equity investment market is ushered in a holding window period, and investment institutions should take part in the market in a more innovative way.

Chinese entrepreneurs may not be familiar with the "Warburg Pincus" in the global M & a market, but they see "Huaping" in many large equity investment transactions. The PE organization not only provides ammunition for many unicorns in China's new economic field, but also co founded many new businesses with outstanding entrepreneurs.

In 2019, Huaping invests 25th anniversary of China. The group completed the $4 billion 500 million fund raising of China two, plus the funding of Huaping Global Fund. China's capital pool reached the highest level in the history of 9 billion dollars. This year is a record year for the withdrawal of Huaping China, which has returned more than 2 billion dollars in return for investors. Jinxin reproductive and ESR (traders rosewood) two companies have been listed successfully.

In the past 25 years, Huaping has been evolving its own investment business while promoting the transformation of Chinese enterprises. Today, there are more institutional investors in Huaping's fund investors. More than 1/3's investment projects are holding or joint holding, and exit is no longer mainly dependent on open market transactions.

"Our return on investment still stems from the growth of enterprises." In an interview with the twenty-first Century economic report, Cheng Zhanglun said that China's PE investment industry has entered the era of comprehensive competition, and has put forward higher requirements for fund managers' post operational capabilities and diversified asset management capabilities.

Hua Ping invested in Cheng Zhanglun. Data map

Head effect is obvious.

Twenty-first Century: what is the overall environment of the domestic equity investment industry in 2019?

Cheng Zhanglun: 2017 -2019 is a new year of financing. On the one hand, because most of the remaining funds of investment institutions are limited, on the other hand, because the scale of head institutions is bigger and bigger, it is generally believed that there are good investment opportunities in the downside of the economy.

In 2019, the trend of fund raising has been divided: RMB funds have entered the cold winter to a certain extent, while the US dollar fund has a significant head effect.

In RMB funds, the penetration of state-owned assets has gradually increased, and the private market funds which are truly market-oriented have a limited proportion. According to the statistics of the Qing Dynasty, the total amount of the state owned subscription has accounted for 75.2% of the total subscription amount of the fund which was newly recorded in 1-11 2019.

The dollar market has a clear trend. In 2017 -2019, the whole industry was about $300 billion, of which more than a dozen companies accounted for about 1/3 of the total financing. Compared with the RMB fund LP, the LP composition of the US dollar fund is more stable and institutionalized and less affected by the policy. They still have great enthusiasm for the investment in the Chinese market.

Twenty-first Century: why is the trend of investment institutions becoming more and more prominent?

Cheng Zhanglun: investors such as sovereign funds, retirement funds and other large institutions have their own trust GP. They are willing to constantly increase their GP for outstanding performance, so the allocation of funds will become more and more concentrated on the head. In fact, LP is most concerned about three figures: ROI, internal rate of return and DPI (the ratio of invested capital dividends, that is, the ratio between project dividends and paid capital). They are the most direct report card of GP.

In addition, the industry has entered an integration period in the past five years. The so-called "burst money" is becoming less and less. Relying solely on traditional explosions is not enough to boost large scale capital, and the scale of projects is getting bigger and bigger, so the head of investment institutions has become an inevitable trend. Nowadays, the four stages of raising, investing, managing and retiring require intensive cultivation. Not every fund has this capability.

The industry has entered the era of comprehensive competition. The brand of investment organization depends on many aspects such as past investment performance and accumulating entrepreneur relationship. In the future, the probability of the emergence of two new members in the top 10 investment institutions is relatively low, but the possibility of further enlargement of the head organization is very high.

Twenty-first Century: what strategy do we take now when we withdraw from this link?

Cheng Zhanglun: comprehensive performance shows all problems. For Hua Ping China, no matter before 2013, DPI exceeded 2, the pool of funds was more than three times the original value, or 75% of assets were all items after 2016. All of these indicate that our capital recovery rate and capital turnover rate are at a high level.

If all projects depend on the public offering market exit, there will be great risks. 10-15 years ago, about 90% of our projects were withdrawn from IPO, which has halved in the past few years. In the future, we will seek more channels for withdrawal and capital withdrawal, such as equity transfer, underlying asset sales, dividends, equity mortgage loans and so on.

For investment institutions, the scale of $23 billion is a watershed. When capital exceeds that scale, diversification becomes a necessity.

The so-called "eggs can not be put in a basket", we need to make use of the correlation between assets to achieve the best portfolio. Hua Ping focuses on five industries, including real estate, TMT, healthcare, finance and consumption, and is investing in the Southeast Asian market. This is enough to ensure that there are enough and diversified cards available.

China's PE investment industry has entered the era of comprehensive competition, and has put forward higher requirements for fund managers' post operation capability and diversified asset management capability. Gan Jun system

Overweight "megalopolis"

Twenty-first Century: what changes will the "megalopolis" bring to China's economic development?

Cheng Zhanglun: the development of "megalopolis" will have a far-reaching impact on China's economic and industrial development. In 2030, China will have over 1 billion people living in cities. Half of them will be concentrated in five "super metropolitan areas". The average population will reach 120 million people, and will contribute 75% of GDP growth and 50% of urban population increment.

The increase of urban density and thickness and the agglomeration effect of metropolitan area will bring many positive effects. In order to support the efficient operation of the "super metropolitan area", a group of super new economic enterprises came into being and developed rapidly.

Taking the real estate industry as an example, with the upgrading of the population density and the improvement of the quality of life of urban residents, the upgrading and upgrading of the stock assets of urban centers will be a long-term trend. A few years ago, we began to pay attention to and layout this area, such as long rental apartment enterprises free, Rubik's cube life, Sheng Xu real estate, urban renewal operator CREATER Chuang Yi, and parking asset operation service providers such as sun Haitian.

Twenty-first Century: when did Huaping start to define the investment theme of the "super metropolitan area"?

Cheng Zhanglun: about three years ago, in fact, the "super metropolitan" effect can be seen from the financing plan of the invested enterprises. In the past more than 20 years, most enterprises have been inclined to start from the second tier cities, and expand their businesses and services to three or four lines of small cities, and expand to the whole country, such as Huiyuan Juice and Yintai department, which we invested before. However, nowadays, enterprises are paying more and more attention to whether they have done enough and enough strength in a metropolitan area.

One of the largest high-end maternity hospitals in China, the United States and China, have developed from one hospital into a national comprehensive gynecological chain medical service platform in seven hospitals, an outpatient center and three monthly clubs in four major cities.

Now, its business focus is on how to do larger and richer product lines in core areas like Beijing instead of copying the same business to more cities.

The centralized long rental apartment Rubik's cube life initially planned to expand its business to 30 cities, but later in practical operation, it was found that the cost of renovation of each house was higher and the rent of small cities was not enough to cover, so the business was difficult to sink. Later, Rubik's cube gave up this path voluntarily, and now he has made more success in Shanghai.

Twenty-first Century: the "super metropolitan area" is the evolution of the theme of consumption upgrading. What is the difference between today's investment and this theme?

Cheng Zhanglun: Huaping always insists on growing investment, and the return on investment depends on industrial growth. When the density of the "super metropolitan area" is increasing and the economic complexity increases naturally, it means that there will be unprecedented opportunities and additional value.

It can be said that the "super metropolitan area" indicates the direction for future investment. We need to anchor a land with value and potential, then use artificial intelligence, 5G, cloud and other "fertilizers" to empower land, so that enterprises growing in the land can achieve leapfrog development. For example, the love learning and education group (formerly Gao Si Education) was previously a traditional tutorial institution with a history of over 20 years. Now it is relying on technologies such as SAAS, cloud and artificial intelligence, and is committed to building a content and technology driven K12 education platform in the whole country.

Holding and joint holding accounted for nearly half.

Twenty-first Century: what do you think is the difficulty of holding type M & A?

Cheng Zhanglun: unlike the common sense, Huaping's holding position in the Chinese market is "holding and joint holding". We have more flexible strategies for founding team and management shareholding, continuing its growth investment gene, enabling enterprises to invest through resources and capital, and promoting growth in performance so as to achieve investment returns. Based on this idea, Huaping will not "change the blood" to the original management, but choose to keep the company's founders and management members holding shares and remain in office.

Twenty-first Century: according to the proportion of investment transactions, Huaping has more than 1/3 projects in China, which are controlled and jointly controlled.

Cheng Zhanglun: Yes, there are more opportunities for acquisition of controlling rights in the Chinese market. Such acquisitions raise higher requirements for the capital strength and management ability of private equity institutions. In the context of slowing economic growth, enterprises with high speed development still need new business growth points, because in business environment, they often "sail against the current and do not advance or retreat".

These enterprises need to rely on external forces, including funds, technology, talents and other different levels of support to achieve team renewal, technology empowerment, or business mode transformation, so as to break through their own limitations. As an investor, we are thinking every day how to help the invested enterprises to further develop and grow and become the industry leaders in their subdivision areas. After all, the greater significance of the private equity market is to help enterprises create value and drive the development of industry and economy.