During The Exit Period, The Tide Of Lifting The Ban Is Superimposed: PE Institutions Are Busy Reducing Their Holdings, And The Strategy Rhythm Is Different

Recently, with the full one-year anniversary of the opening of the science and technology innovation board, the tide of reducing Holdings has arrived as promised. According to the statistics of the 21st century economic report, among the first 25 companies listed on the science and technology innovation board, more than 10 companies, including Guangfeng technology, rongbai technology, Western superconductor, and Hanchuan intelligent, have issued shareholder reduction announcements.

As early investors, many venture capital institutions, such as Shenzhen Venture Capital, Dachen and Saifu, participated in this round of share reduction. Some of them have invested in the project for more than ten years, and finally get real gold and silver returns. At the beginning of July, the A-share market rose sharply, and venture capital institutions such as yuanfuhai and Huatai Zijin reduced their shares in the invested companies.

"At present, many listed companies on the science and technology innovation board have passed the period of prohibition, and with the overall situation of a shares getting better, more and more venture capital institutions will participate in the reduction of their holdings." A PE partner told the 21st century economic report.

In his view, the reduction of holdings is the real safety of falling bags, and it is also a key step for venture capital funds to complete the closed-loop "raising, investment, management and withdrawal". After withdrawing from LP, the fund will continue to return. To some extent, it will be difficult for the industry to raise funds.

The reduction of holding is the real security of falling bags, and it is also a key step for VC funds to complete the closed-loop of "raising investment, management and withdrawal". This "retreat for advancement" process, to a certain extent, alleviate the industry's difficult situation of fund-raising. IC photo

Fund exit period superimposed stock market lifting tide

Due to the arrival of the tide of lifting the ban on the science and technology innovation board, the reduction of shareholders' holdings has become a hot phenomenon. As for the market performance under the trend of reducing shares, Zhang Chi, chairman of Xinding capital, analyzed the 21st century economic report that for a long time in the past, people believed that the reason why the enterprises on the science and technology innovation board could achieve hundreds of times the P / E ratio and maintain the overvalued value was because there were too few sales and too much buying. Once the company has passed the prohibition period and shareholders begin to reduce their holdings, the share price of the enterprise may fall sharply. But now the situation is basically no big drop, some companies' share prices are even rising. This shows that the value of science and technology innovation board enterprises has been recognized, and the market has been able to bear the pressure.

It is worth noting that, in this wave of reduction, some venture capital funds even carried out clearance type reduction. In this regard, Zhang Chi believes that the fund to do so is more because of the impact of exit pressure, rather than that it no longer recognizes the value of the target company.

According to the data of Qingke Research Center, from 2013 to 2015, the domestic equity investment market grew at a high speed, and the number and amount of new funds raised reached a periodic peak during this period. According to the "5 + 2" or "7 + 2" duration, the funds established in the early years gradually enter the exit period. Therefore, under the pressure of exit, venture capital institutions usually choose to reduce the shares of the listed companies they invested in and return the funds to LP, which also helps institutions to increase the DPI of funds.

But the reduction operation of venture capital institutions is not arbitrary, but subject to certain restrictions. According to the new regulations on share reduction implemented in 2017, after the listing of enterprises is lifted, major shareholders and shareholders holding shares issued before IPO can reduce their shareholding by 4% annually (1% every 3 months), 8% through block trading (no more than 2% every 90 days), and 12% of the total shares in the whole year through two ways.

"After the reduction of the investment in the institutions, it will still be in accordance with the regulations. Venture capital fund has an investment period. From investing in an enterprise until it has been listed on the stock market, it has basically reached the end of the fund's duration. In the case of insufficient time, the fund can only choose to reduce its holdings in an orderly manner in accordance with the regulatory rules. " National Bo, President of the China Investment Research Institute, told the 21st century economic report.

He said that for the standard Hong Kong stock market and the US stock market, the A-share market is still relatively strict. Such strict regulations are related to the development stage of China's capital market and also to protect the interests of small and medium-sized investors. But it does have a certain impact on the exit rhythm of venture capital institutions.

However, in March 2020, the release of the special provisions on the reduction of shares held by the shareholders of venture capital funds of listed companies (revised in 2020) has brought about "loosening" on the reduction of shares of venture capital funds. Guo Guobo said that many provisions in the above-mentioned documents have brought benefits to the withdrawal of venture capital funds. For example, there is no limit on the reduction ratio of venture capital funds with an investment period of more than five years after the lock-in period expires, which helps venture capital institutions speed up the pace of exit to a certain extent, and also encourages venture capital institutions to invest early, invest small and invest long.

There are different strategies for reducing institutional holdings

Since the beginning of this year, a large number of venture capital funds have joined the army of reducing Holdings under the influence of a series of factors, such as exit pressure, the tide of lifting the ban on the science and technology innovation board, and the situation of A-share.

According to the statistics of the number of shares held by guoyubo and Kaiyu, which can be reduced by more than 10% of the total amount of shares held by guoyubo and Kaiyu, only 10% of the total amount of shares held by guoyubo and Kaiyu in the first half of the year can be reduced Capital, National IC industry investment fund, Chongqing Yuzi, etc.

The 21st century economic report reporter found that for venture capital institutions, there are usually three strategies to reduce holdings. The first is to reduce holdings when there is an opportunity to reduce their holdings if they meet the regulatory requirements. The price reduction strategy is probably the best way to stabilize the price. After all, venture capital fund investment in the secondary market is not a strong point, as soon as the ban is lifted, seeking to reduce holdings is the most common strategy.

However, such centralized reduction may also cause pressure on the market and even lead to the occurrence of "stampede events". The fund adopting the second strategy usually has an observation period after the lifting period, and then carries out the reduction operation.

The founding partner of a venture capital institution told the 21st century economic report that although the listed companies on the science and technology innovation board it invested in had passed the prohibition period, the organization was still under observation and had no specific plan to reduce its holdings.

"On the one hand, we are optimistic about the future development prospects of the invested companies and hope to hold the company's shares for a longer time. On the other hand, the centralized reduction at this stage will also have a certain impact on the company's share price, and the selling price may not be good. We still hope that the reduction will be considered after the stock price stabilizes. " He said.

The third option is more flexible. The institution will analyze the situation of the projects invested and the secondary market to confirm the progress of the reduction. If you think that the future space of the project is not very large, you should reduce the holdings more quickly. If you continue to be optimistic about the development potential of the project, you will stay on hand for a longer time. Similarly, if you think the secondary market is better, you should accelerate the reduction at the high price. If the market is sluggish, they may choose to continue holding shares.

It is understood that most institutions in the market reduce their holdings in the first two, and the third is still in the minority. "Some funds choose the third strategy purely, that is, they want to sell their shares at a good price when the fund has enough time to exit. There are also a small number of funds in the secondary market have certain ideas, it is not in a hurry to reduce holdings, but hope to borrow to extend business to the secondary market. " The evaluation of the above venture capital agencies.

But at present, the number of venture capital institutions to develop business in the secondary market is still relatively small. On the one hand, there are still differences in investment strategies between the primary market and the secondary market. On the other hand, "primary and secondary market linkage" sounds like a very good strategy. However, in the increasingly severe situation of supervision, if we do not do it in a meticulous and standardized way, we will easily touch the red line of supervision, which will have a negative impact on the institutions.

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