Sun Yili: Return To The Essence Of Investment

In 2020, when black swans are frequent, the private equity investment industry is constantly shuffling, and investors are also reflecting and exploring: how to explore value in the reverse cycle? How to judge the relatively scarce high-quality projects and overvalues?

"Both enterprises and investment institutions should take quality as the criterion and anchor the essence of business. If we don't see the essence of investment, we'd better not see the essence Recently, sun Qiang, managing partner of TPG in China, said in an exclusive interview with 21st century economic report.

Founded in 1992, TPG is one of the largest investment companies in the world. As early as 1994, TPG established Xinqiao capital to enter the Asian investment market. In the Chinese market, TPG has invested in Shenzhen Development Bank, Li Ning company, CICC, harmony family, Moby bicycle and other enterprises.

Sun Qiang, who has witnessed several business cycles, is the pioneer of US dollar PE in China's pioneering period. After joining TPG in 2017, he opened a new frontier in the field of influence investment in China, and delivered a commendable report card.

It is understood that TPG's the rise fund is the first large-scale pure influence investment fund in the world. In the past three years, sun Qiang has led Ruisi fund to invest in Zhonghe rural credit cooperatives, duxiaoman and lvkemeng group, and is looking for more opportunities in the fields of inclusive education, inclusive health care and Inclusive Finance.

"Many people have misunderstandings about influence investment and think that the return of influence investment is not satisfactory. This is not the case. It is possible to achieve justice and benefit at the same time. " He stressed.

Since TPG entered the Chinese market for more than 20 years, the domestic private equity industry has developed rapidly and the competition has become increasingly fierce. In this regard, sun Qiang said that the diversification of market investors is welcome, and all kinds of institutions can cross the sea in eight immortals and show their magic powers. Looking forward to the future, he believes that global institutions such as TPG can continue to seek development space with their own international vision and professional ability, and can also develop in frontier fields such as influence investment.

Industry differentiation intensifies, seeking development space with internationalization and specialization

"21st century": under the influence of the cold winter of fund-raising and the epidemic situation of new crown, the differentiation of private equity industry is more and more obvious. Many small and medium-sized organizations will find it difficult to raise funds if the head office continues to complete large-scale fund-raising. What do you think of this phenomenon? Is it the evolution or deterioration of the industry ecology?

Sun Qiang: it is a normal phenomenon that the industry is divided and the capital is gathering more and more to the head. The private equity industry in Europe and America has also gone through such a process. When I first joined the industry in 1995, TPG was just established, and its management scale was not large, but now its management scale is close to 100 billion US dollars. Some other international PE companies have also experienced the process of scale expansion and product line diversification.

Looking at the domestic market, statistics show that there are about 15000 VC and PE investment institutions in the equity investment industry, and only more than 4000 are active. It is relatively difficult for institutions with weak brand effect to raise funds, while the management scale of head institutions is getting bigger and bigger.

I think that in the end, a relatively stable situation will be formed. Large, medium and small-scale institutions can coexist and find their own market. When the head office becomes bigger and bigger, it will form a clustering effect and make a comprehensive layout in VC, PE, M & A investment and other links. In the end, investment institutions still depend on their performance. If the performance of small-scale institutions is good enough, they can also become industrial and specialized boutique institutions.

"21st century": after some head organizations have completed large-scale fund-raising, the phenomenon of competing for head projects with high valuation often occurs. For large international investment institutions like TPG, where are the competitive advantages and development space?

Sun Qiang: I think the investment should return to the value fundamentals. This is the essence of investment and will not change in the long run. On this basis, all kinds of investment institutions can build their own competitiveness.

"Internationalization" is an advantage of global investment institutions, which is also our DNA. Especially when some enterprises want to become international companies, investment institutions like us can make brand endorsement and leverage international experience and resources to provide support. At the same time, team specialization is also important. For example, in the field of biomedicine, many companies may not have sales revenue in the next few years, but if they finally make products, the company will develop in a blowout style; if they can't, they will be in vain. In this case, institutions should make judgments based on their own professional ability, and should not invest blindly. We have global professional data for reference and can communicate with the founders professionally, which gives us a chance to win.

Balance the scale and quality of funds and test the ability of managers

21st century: in the domestic market, many funds are getting bigger and bigger. However, the past data show that the larger the fund size, the return is not always ideal. What do you think should be done to deal with the problem of scale and efficiency?

Sun Qiang: it is certainly a good thing to have both scale and efficiency, but it is really not easy to achieve this. After the scale is expanded, it is easy to exceed the scope of their original ability, which puts forward higher requirements for fund managers.

When the fund reaches a certain level, it is necessary to change the business model. At present, the practice of some institutions is to set up a unified platform for companies to raise funds at the top, and subdivide them into each fund at the bottom, so as to retain their own style and decision-making power.

21st century: we have observed that many foreign PE companies have entered China very early, but the investment business has not been carried out smoothly and the scale expansion has not been so fast. What are the reasons?

Sun Qiang: every organization should find its own development space and rhythm. Quality and efficiency are the source of development. It's like building a house. You have to make the foundation firm first and then build it up. The scale of some companies has rapidly reached the scale of tens of billions or even hundreds of billions, but it also falls down very quickly. This is a reminder that the most important thing is to lay a solid foundation.

Under the 21st century: will there be any impact on China's Geopolitics in the 21st century?

Sun Qiang: no matter how the external environment changes, we will stick to our own pace, find enterprises with good business model and invest in them with appropriate valuation. China has nearly one-fifth of the world's population and contributes a major part of global GDP growth. For investors in global asset allocation, it is impossible not to invest in China, just like investing in the United States and California.

21st century: from o2o, sharing economy to chip semiconductor, there are many hot spots in the industry, which are constantly changing. There are also many pits, such as Ruixing, eggshell explosion, and P2P enterprises which used to be popular for a time are gradually coming to an end. In this process, what does TPG adhere to when making investment?

Sun Qiang: I think we still need to see the essence of investment and find good enterprises with real core competitiveness. To judge an enterprise, we should first see whether the market it faces is large enough; at the same time, we should consider its business model. We attach great importance to UE (unit economic model). The unit economic model of an enterprise must be healthy, otherwise the larger the expansion, the greater the loss.

The company's team is made up of many people, and the products and markets are made up of many small units. It takes a lot of time for investors to see the small units one by one. The old Chinese saying "Haste makes waste", which is applicable to investment. In the absence of a clear understanding of the nature of investment, it is easy to make mistakes in the busy, so we should have trade-offs and not blindly move. Investors will miss some good projects every year, but they will also seize some good projects. The key is to keep the essence of investment.

Influence investment can realize both justice and benefit

21st century: when you joined TPG in 2017, an important reason was that TPG owned the rise fund, the first large-scale pure influence investment fund in the world. In your opinion, how to balance social and economic benefits in influence investment?

Sun Qiang: the history of influence investment is not particularly long. It has just become the mainstream in Europe and the United States, and its popularity in China has just begun. Many people have misunderstanding about influence investment and think that the return of influence investment is not satisfactory. This is not the case. It is possible to achieve justice and benefit at the same time.

We have recently invested in the Hong Kong based green Monday group. This is a plant-based food company, committed to the development and sales of innovative plant protein dietary products to address climate change and promote low-carbon life. This not only promotes health, but also protects the environment and brings good social benefits. At the same time, green guest League also has good economic benefits.

When we make impact investment decisions, we will consider the social and economic benefits of the project. We firmly believe that both are equally important.

21st century: in your mind, how do you rank GP shareholders, invested enterprises and LP?

Sun Qiang: I think we should take into account the three. It is always a balanced process. For example, a company's last round of financing was valued at $500 million, and three months later it was valued at $1 billion. Should it invest? This involves the interests of LP, GP shareholders and the enterprise itself, which should be satisfied by all three parties, but it is not easy to make a good balance.

In the end, the hero should be judged in terms of success or failure. If the next round of financing enterprise valuation continues to rise significantly, then everyone is happy. If the valuation goes upside down, LP, GP shareholders and enterprises will not be satisfied. If the enterprise develops well, LP can make money, and we can also have good profits. We have a balanced and cooperative relationship with each other.