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1. Members registered in this website must abide by the provisions on the administration of Internet electronic announcement service, and shall not publish information such as defamation of others, invasion of others' privacy, infringement of others' intellectual property rights, spread of viruses, political speech, commercial information, etc.
2, in all the articles published in the site, the site has the final right to edit, and reserve the right to print or publish to a third party, if your information is not complete, we will have the right to use your work published in the site without any notice.
3. During the registration process, you will choose the registration name and password. The choice of registration name shall comply with laws, regulations and social ethics. You must keep your password confidential and you will be responsible for all activities that take place under your registered name and password.
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The Strategist: 18 of the Best Discuss the Future of Chinese Fund Managers

FOF Weekly Updated September 23, 2020

At the opening of 2020, the world economy was wholly unprepared for what lay ahead. But just a few months in and the concomitant systemic risks have made themselves ubiquitous and devastating: COVID-19 broke out and shuttered almost every industry around the world, and the great political powers continued to flex their muscles over an uncertain economic landscape. 

Now more than ever, the future looks radically uncertain. Economic recovery is far on the horizon, if not out of sight, leaving enterprises and investment institutions trapped in the ever-intensifying Matthew effect where the rich are getting richer and the poor are getting poorer.

The question for Chinese investors and fund managers is still pending: in the great 2020 reshuffle, how can Chinese investment institutions tear off immature labels and embrace a new decade of quality growth? 

pexels-photo-886521.jpeg

The Inevitable Rise of ESG

As a crucial part of impact investment, ESG entails strategy and practice that integrates environmental, social and corporate governance into investment decision-making and active ownership. ESG-adopting fund managers can decrease investment risk while increasing long-term returns.

China’s pension fund, the flagship of farsighted investors, is influencing the Chinese investment industry due to its practice of and high standards for ESG investments. Wang Zhongmin, former vice president of the National Council for Social Security Fund, argues that large asset owners such as China Investment Corporation (CIC) the state-owned enterprise and the National Social Security Fund should consider ESG when choosing entrusted investment managers. Thus, the awareness for social benefits can be passed down from the asset owners to the asset operators and then to the portfolios.

CGP Investment, who joined UN Principles for Responsible Investment (UNPRI) in May 2019, leads the trend in China as a government-guided fund manager. Zhang Yang, CEO of CGP Investment, highlights CGP’s responsible investments through their supportive efforts in regional coordinated development, green economy, the government-launched Beautiful Countryside Program, and targeted poverty alleviation. 

“CGP Investment as a fund of funds (FoF) believes it is necessary to communicate with sub funds about responsible investment strategy in China, help them improve practices, and offer them post-investment services and resources.”

Starquest Capitalis guiding ESG in China by releasing the first-of-its-kind “ESG Investment Yearbook 2020: Deploying Capital Responsibly” in June 2020. “FoF is naturally suitable for ESG investments as it makes long-term, diverse investments which thus receive stable returns,” says Fang Yuan, the founding and managing partner of Starquest Capital, which has an established, effective system for ESG investment and evaluation at the strategy, methods and implementation levels.

Now that Starquest deals with implementation,FOF Weeklyobserves that ESG-based venture investment has three hurdles still to overcome:

1)    Venture funds, with a small team but a large assets portfolio, cannot evaluate or analyze ESG efficiently; 

2)    ESG-related talents are in short supply; 

3)    Clear ESG evaluation criteria are still absent.

The criteria part resonates with Starquest’s Fang Yuan, who describes China’s ESG challenge as threefold: 

1)    A frosty fundraising winter when liquidity in the primary market contracts makes fundraising - rather than anything else - the most urgent priority for general partners (GPs);

2)    No unified standard for ESG in the primary market makes it difficult for any target firms to implement ESG practices; 

3)    A complete ESG ecosystem still needs extra help from regulators and limited partners (LPs) including pension, insurance and sovereign wealth funds and university endowments, etc.

Chinese asset managers are turning their attention to ESG because of the central government’s sustainable development philosophy. Fang Yuan from Starquest Capital holds that China is in particularly privileged position to conduct ESG due to regulatory authorities’ support, and the swift shift in focus from single-minded financial returns to financial&impact performance is also inseparable from the current economic transformation of China.

Wang Chaoyong, the founding partner of ChinaEquity Group, further suggests that China should encourage or channel long-term capital into venture investment by top-level institutional design, so as to let venture capital (VC) serve the real economy to its highest degree and allow the ESG concept to solidify.

“A-share market’s inclusion of international indexes has already greatly promoted ESG in China in recent years. The ESG spread in the secondary market is action-forcing for start-ups in the primary market to pay attention to “soft power” in environmental, social and corporate governance, which is conducive to the long-term development of China’s private equity (PE) and VC industry,” adds Wang Chaoyong. 

FOF Weeklystates that as asset managers like FoFs start to recognize ESG and provide strategies and processes for sustainable investment while foreign capital is flooding into China’s capital market, ESG has gradually entered the mainstream.

bull-center-bulls-eye-darts-15812.jpg

When Selecting GPs, Professionalism is Essential

Asset allocation is proverbially known to be closely related to GPs. With public data indicating that China has up to 24,000 registered GPs, it is crucial to make FoFs savvy enough to spot capable managers – no matter through a strict screening mechanism or advisable investment methodologies.

“Professionalism is Oriza FoFs’ top priority. An investment fund is essentially about fiduciary financial management, so why bother? The entrusted manager must have better resources, cognition and insights in the vertical and be reliable due to their strong work ethics. Oriza FoFs has evolved from general to professional and now even more towards the professional in selecting GPs, though flexibility and diversity are retained to a certain extent,” says Wang Jipeng, partner of Oriza FoFs.

“Redbud Capital-selected elite GPs are, first and utmost, teams that spun off from large organizations. Though the competitiveness of those with an industrial background is yet to be determined against those with a VC background, investment managers who once worked in the target industry definitely have a more sensitive nose for sniffing out valuable information,” says Shen Zhengning, chairman of Redbud Capital, a self-defined VC FoF.

LuPu Investment has a scoring system with quantitative criteria for GP selection, on theprinciple basis of cherry-picking, focusing and farseeing. That means quantitative and qualitative GP screening and reviewing of all its current and past members, investment methodology, target industries, investment performance and others. “LuPu Investment also cares about GPs’ target industries layout, such as a composition of TMT + healthcare and medicine + big consumption. That echoes our focusing principle - a risk control means that also improves efficiency for LuPu Investment,” states Lin Wei, vice chairman of LuPu Investment.

FoFs are also responsible for selecting professional investment managers that can bolster real economy.

Xiao Feng, president of CICC Capital, proposed the following suggestion in this regard: “FoF managers should improve their professionalism to: 1) spot dark horse projects and increase asset allocation efficiency; 2) invest in original innovation in a  timely fashionand bet heavily on high-precision technology; 3) make the earliest foray into overseas emerging industries and draw a roadmap; 4) innovate FoF products and expand fund scale.”

“Equity investment needs a long-term cross-cycle time test, and both LPs and GPs should stick to professionalism. GP specialization can ensure a better service for invested enterprises, making elite enterprises more willing to accept investment. LP expertise can help find the trend, improve the asset allocation strategy, and source the best GPs and target firms,” says Chen Wen, executive partner of Qianhai FoF.

GP professionalism is one of the three prerequisites for a venture fund to scale up, suggests Jiang Yucai, vice president of Shenzhen Capital Group. The three prerequisites are: 1) A professional and reliable GP. The future is shifting to those professional, large-scale and branded GPs who respect LP interests and information disclosure. 2) Long-term stable LPs. A shift from listed and real estate companies and high-net-worth individuals to government-guided, social security and insurance funds and corporate investors is expected. LPs may control the direction and related party transactions, but they should respect GPs’ interests and independent decision-making. 3) Favorable external environment and preferential policies. Tax relief and regulatory norms are typical examples.

“In the past one or two decades, the large size of the Chinese market and affluent capital made it easy for Chinese enterprises to earn a fortune,” states Tang Ning, CEO of CreditEase. But those days are gone – making money is no longer as simple as before and now winners are all experts, which is even more evident now as the Matthew effect is manifesting more evidently.

“The PE investment industry is polarizing, resulting in ‘survival of the fittest’ in the FoF segment – the remaining could be 10% of the total players. Compared with the established markets such as the United States, China has disproportionate volume of managers to assets-under-management (AUM). Top FoFs cooperating with top GPs would be hugely competitive, however.”

pexels-photo (1).jpg

Investment Methodology the Differentiating

Ni Zhengdong, founder and chairman of Zero2IPO, recently reveals that the Chinese PE investment industry is undergoing a great reform – the likes of which have not even been experienced in the past 20 years. Along with it, funding structure, investment direction and exits are all expected to evolve.

“You are either as big and strong as Sequoia, Hillhouse and Shenzhen Capital Group, or as small and wealthy as others with a lean institution but high return rates. These are the only two types of institutions that can survive in China in the future,” says Ni Zhengdong.

Pu Xiaoyan, partner of Sequoia Capital China, shares her opinion: “Sequoia Capital China has an investment methodology to provide entrepreneurs with sufficient capital, resources and post-investment services at all stages of the business life cycle.”

Legend Capitalis an established VC firm enjoying nearly a 20-year history with over CNY50 billion ($7.4 billion) AUM and over 450 invested firms. “Legend Capital has been sticking to a systematic roadmap for 20 years, focusing on the fields in which it has expertise. It prefers to invest in To-Businesses startups, tech innovation, demand-upgrading and new technology-driven industrial transformation opportunities, while paying attention to tech barriers, the business model and the cash flow of enterprises,” says Li Jiaqing, managing director and chief investment officer of Legend Capital.

Xu Xiaolin, founding partner and chairman of Huagai Capital, has been engaged in equity investment for 15 years and invested in more than 200 enterprises. He has come up with 4 theories comprising his investment methodology:

1)    Bracket theory. Diversification is the lethal poison for a startup PE/VC firm who should be laser-like focused on its most comfortable industry. The narrower the bracket, the better. 

2)    Mainstream theory. The trend is far more powerful than a single individual. Don’t always think that a man is invincible. 

3)    Practice theory. The best way to learn is to invest real money in person and constantly improve your investment methodology. 

4)    Peace of mind theory. Investment is always about betting, in which quantitative models cannot secure certainty.

Oriental Fortune Capital, the 14-year-old investment manager with over CNY20 billion ($3.0 billion) AUM and over 380 investees, has 10 investment methodologies:

1)    See through the landscape and target the right industry;

2)    Take market-based long-term money only; 

3)    Always earn money from the trend only; 

4)    Specialize the fund and connect services into a platform;

5)    Put the right people in the right position; 

6)    Establish a profiting mechanism that everyone knows clearly; 

7)    Let the ones on frontline who hear the gunfire make the decisions; 

8)    Focus on both sides of the investment; 

9)    Provide help, always; 

10)Stay diligent and earnest.

Chen Wei, chairman of Oriental Fortune Capital, gives his opinion: “Stability is one of our biggest characteristics. We are not the most profitable, but we are always profitable. And we are ready for the next decade with our golden triangle, i.e. return-generating funds, a cohesive team and continuous strategies.

Guangzhou Yuexiu Industrial Investment Fund, which was established in 2011 and currently has over CNY60 billion ($8.8 billion) AUM, is the leading or exclusive investor of 60% of its invested projects. Lu Rong, president of Yuexiu Industrial Investment Fund, has his 5-step investment secret: source, target, invest, manage and exit.

Sourcing needs channels; targeting examines investment managers’ ability; investing is based on recognition and trust between the investment team and startup founders; managing is to offer value-added service for the invested projects; and exiting means the fund can achieve continuous fund-raising.

Meridian Capital, a professional VC, is the leading investor of more than 90% of its projects. “Investing should be deep-rooted, like a banyan tree bursting out of soil, flourishing and growing more roots into the ground. The ecosystem is in constant improvement and the vitality is ever increasing in absorption of more nutrients and sunshine,” asserts Ji Wei, founding and managing partner of Meridian Capital.

Liu Yihao, PE investment partner of Gopher Asset, has his three-step recipe before determining strategies, goals and control points:

1)    Look at the market trend to choose the target industry - information technology is the trend of the future; 

2)    Listen to clients’ demands and their motivation, using the portfolio to disperse risk and reach stability; 

3)    Learn about the environment to spot competitive advantages and conduct self-positioning - secondaries funds are currently embracing a historic opportunity. 

WechatIMG1231.jpeg

Some Final Words

A lesson is learnt from McKinsey the management consulting firm’s conclusion which is drawn from reviewing the world’s leading investment institutions. The conclusion draws the top PE firms’ portrait as follows:

1)    Persistently seek absolute returns to create continuous value for investors, regarding investment performance as the core.

2)    Become capable of investing or managing projects in multiple industries through investment or buyout, and provide one-stop services for investees, so as to meet LPs’ demands.

3)    Strive to become a specialist and focus on the chosen segment, screening self-owned projects rather than sourcing through public bidding.

4)    Sit on the asset manager throne in a certain type of asset class and establish brand awareness.

5)    Grow muscles in fundraising and provide one-stop services for cornerstone investors such as social security and sovereign wealth funds.

6)    Build a professional post-investment management team and an industrial experts’ network to increase investment performance through post-investment value-added services.

7)    Innovate business model to expand into investment banking, structured financing and wealth management derivatives for new growth momentum.

8)    Focus on institutional capacity building: corporate governance, institutional structure, talent management, the investment decision-making process, risk management and information technology are among the lists.

In the past 20 years, Chinese GPs take hard power as the top priority: sizable AUM, diverse target industry, large portfolios and speedy returns etc. However, in the next 20 years, that position will be given to soft power: ESG, investment philosophy, systematic operation, professional management, digital risk control, brand core values and social impacts. If the political and pandemic upheavals of 2020 have taught us anything, it will be that these shifts will come about quickly. And those who can adopt them will thrive.

Referential materials from PEdaily.cn, 21stCentury Business Herald, China Fund News, 36 Kr, TMTPost and Frontline of Tencent News etc.


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REGISTER NOW !
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l read and agree to
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Create a new account Sign up!
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E-mail address
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l read and agree to
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CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
FOF WEEKLY Account terms of service
1. Members registered in this website must abide by the provisions on the administration of Internet electronic announcement service, and shall not publish information such as defamation of others, invasion of others' privacy, infringement of others' intellectual property rights, spread of viruses, political speech, commercial information, etc.
2, in all the articles published in the site, the site has the final right to edit, and reserve the right to print or publish to a third party, if your information is not complete, we will have the right to use your work published in the site without any notice.
3. During the registration process, you will choose the registration name and password. The choice of registration name shall comply with laws, regulations and social ethics. You must keep your password confidential and you will be responsible for all activities that take place under your registered name and password.
Already have an account? Sign in!
E-mail adress

The Strategist: 18 of the Best Discuss the Future of Chinese Fund Managers

FOF Weekly Updated September 23, 2020

At the opening of 2020, the world economy was wholly unprepared for what lay ahead. But just a few months in and the concomitant systemic risks have made themselves ubiquitous and devastating: COVID-19 broke out and shuttered almost every industry around the world, and the great political powers continued to flex their muscles over an uncertain economic landscape. 

Now more than ever, the future looks radically uncertain. Economic recovery is far on the horizon, if not out of sight, leaving enterprises and investment institutions trapped in the ever-intensifying Matthew effect where the rich are getting richer and the poor are getting poorer.

The question for Chinese investors and fund managers is still pending: in the great 2020 reshuffle, how can Chinese investment institutions tear off immature labels and embrace a new decade of quality growth? 

pexels-photo-886521.jpeg

The Inevitable Rise of ESG

As a crucial part of impact investment, ESG entails strategy and practice that integrates environmental, social and corporate governance into investment decision-making and active ownership. ESG-adopting fund managers can decrease investment risk while increasing long-term returns.

China’s pension fund, the flagship of farsighted investors, is influencing the Chinese investment industry due to its practice of and high standards for ESG investments. Wang Zhongmin, former vice president of the National Council for Social Security Fund, argues that large asset owners such as China Investment Corporation (CIC) the state-owned enterprise and the National Social Security Fund should consider ESG when choosing entrusted investment managers. Thus, the awareness for social benefits can be passed down from the asset owners to the asset operators and then to the portfolios.

CGP Investment, who joined UN Principles for Responsible Investment (UNPRI) in May 2019, leads the trend in China as a government-guided fund manager. Zhang Yang, CEO of CGP Investment, highlights CGP’s responsible investments through their supportive efforts in regional coordinated development, green economy, the government-launched Beautiful Countryside Program, and targeted poverty alleviation. 

“CGP Investment as a fund of funds (FoF) believes it is necessary to communicate with sub funds about responsible investment strategy in China, help them improve practices, and offer them post-investment services and resources.”

Starquest Capitalis guiding ESG in China by releasing the first-of-its-kind “ESG Investment Yearbook 2020: Deploying Capital Responsibly” in June 2020. “FoF is naturally suitable for ESG investments as it makes long-term, diverse investments which thus receive stable returns,” says Fang Yuan, the founding and managing partner of Starquest Capital, which has an established, effective system for ESG investment and evaluation at the strategy, methods and implementation levels.

Now that Starquest deals with implementation,FOF Weeklyobserves that ESG-based venture investment has three hurdles still to overcome:

1)    Venture funds, with a small team but a large assets portfolio, cannot evaluate or analyze ESG efficiently; 

2)    ESG-related talents are in short supply; 

3)    Clear ESG evaluation criteria are still absent.

The criteria part resonates with Starquest’s Fang Yuan, who describes China’s ESG challenge as threefold: 

1)    A frosty fundraising winter when liquidity in the primary market contracts makes fundraising - rather than anything else - the most urgent priority for general partners (GPs);

2)    No unified standard for ESG in the primary market makes it difficult for any target firms to implement ESG practices; 

3)    A complete ESG ecosystem still needs extra help from regulators and limited partners (LPs) including pension, insurance and sovereign wealth funds and university endowments, etc.

Chinese asset managers are turning their attention to ESG because of the central government’s sustainable development philosophy. Fang Yuan from Starquest Capital holds that China is in particularly privileged position to conduct ESG due to regulatory authorities’ support, and the swift shift in focus from single-minded financial returns to financial&impact performance is also inseparable from the current economic transformation of China.

Wang Chaoyong, the founding partner of ChinaEquity Group, further suggests that China should encourage or channel long-term capital into venture investment by top-level institutional design, so as to let venture capital (VC) serve the real economy to its highest degree and allow the ESG concept to solidify.

“A-share market’s inclusion of international indexes has already greatly promoted ESG in China in recent years. The ESG spread in the secondary market is action-forcing for start-ups in the primary market to pay attention to “soft power” in environmental, social and corporate governance, which is conducive to the long-term development of China’s private equity (PE) and VC industry,” adds Wang Chaoyong. 

FOF Weeklystates that as asset managers like FoFs start to recognize ESG and provide strategies and processes for sustainable investment while foreign capital is flooding into China’s capital market, ESG has gradually entered the mainstream.

bull-center-bulls-eye-darts-15812.jpg

When Selecting GPs, Professionalism is Essential

Asset allocation is proverbially known to be closely related to GPs. With public data indicating that China has up to 24,000 registered GPs, it is crucial to make FoFs savvy enough to spot capable managers – no matter through a strict screening mechanism or advisable investment methodologies.

“Professionalism is Oriza FoFs’ top priority. An investment fund is essentially about fiduciary financial management, so why bother? The entrusted manager must have better resources, cognition and insights in the vertical and be reliable due to their strong work ethics. Oriza FoFs has evolved from general to professional and now even more towards the professional in selecting GPs, though flexibility and diversity are retained to a certain extent,” says Wang Jipeng, partner of Oriza FoFs.

“Redbud Capital-selected elite GPs are, first and utmost, teams that spun off from large organizations. Though the competitiveness of those with an industrial background is yet to be determined against those with a VC background, investment managers who once worked in the target industry definitely have a more sensitive nose for sniffing out valuable information,” says Shen Zhengning, chairman of Redbud Capital, a self-defined VC FoF.

LuPu Investment has a scoring system with quantitative criteria for GP selection, on theprinciple basis of cherry-picking, focusing and farseeing. That means quantitative and qualitative GP screening and reviewing of all its current and past members, investment methodology, target industries, investment performance and others. “LuPu Investment also cares about GPs’ target industries layout, such as a composition of TMT + healthcare and medicine + big consumption. That echoes our focusing principle - a risk control means that also improves efficiency for LuPu Investment,” states Lin Wei, vice chairman of LuPu Investment.

FoFs are also responsible for selecting professional investment managers that can bolster real economy.

Xiao Feng, president of CICC Capital, proposed the following suggestion in this regard: “FoF managers should improve their professionalism to: 1) spot dark horse projects and increase asset allocation efficiency; 2) invest in original innovation in a  timely fashionand bet heavily on high-precision technology; 3) make the earliest foray into overseas emerging industries and draw a roadmap; 4) innovate FoF products and expand fund scale.”

“Equity investment needs a long-term cross-cycle time test, and both LPs and GPs should stick to professionalism. GP specialization can ensure a better service for invested enterprises, making elite enterprises more willing to accept investment. LP expertise can help find the trend, improve the asset allocation strategy, and source the best GPs and target firms,” says Chen Wen, executive partner of Qianhai FoF.

GP professionalism is one of the three prerequisites for a venture fund to scale up, suggests Jiang Yucai, vice president of Shenzhen Capital Group. The three prerequisites are: 1) A professional and reliable GP. The future is shifting to those professional, large-scale and branded GPs who respect LP interests and information disclosure. 2) Long-term stable LPs. A shift from listed and real estate companies and high-net-worth individuals to government-guided, social security and insurance funds and corporate investors is expected. LPs may control the direction and related party transactions, but they should respect GPs’ interests and independent decision-making. 3) Favorable external environment and preferential policies. Tax relief and regulatory norms are typical examples.

“In the past one or two decades, the large size of the Chinese market and affluent capital made it easy for Chinese enterprises to earn a fortune,” states Tang Ning, CEO of CreditEase. But those days are gone – making money is no longer as simple as before and now winners are all experts, which is even more evident now as the Matthew effect is manifesting more evidently.

“The PE investment industry is polarizing, resulting in ‘survival of the fittest’ in the FoF segment – the remaining could be 10% of the total players. Compared with the established markets such as the United States, China has disproportionate volume of managers to assets-under-management (AUM). Top FoFs cooperating with top GPs would be hugely competitive, however.”

pexels-photo (1).jpg

Investment Methodology the Differentiating

Ni Zhengdong, founder and chairman of Zero2IPO, recently reveals that the Chinese PE investment industry is undergoing a great reform – the likes of which have not even been experienced in the past 20 years. Along with it, funding structure, investment direction and exits are all expected to evolve.

“You are either as big and strong as Sequoia, Hillhouse and Shenzhen Capital Group, or as small and wealthy as others with a lean institution but high return rates. These are the only two types of institutions that can survive in China in the future,” says Ni Zhengdong.

Pu Xiaoyan, partner of Sequoia Capital China, shares her opinion: “Sequoia Capital China has an investment methodology to provide entrepreneurs with sufficient capital, resources and post-investment services at all stages of the business life cycle.”

Legend Capitalis an established VC firm enjoying nearly a 20-year history with over CNY50 billion ($7.4 billion) AUM and over 450 invested firms. “Legend Capital has been sticking to a systematic roadmap for 20 years, focusing on the fields in which it has expertise. It prefers to invest in To-Businesses startups, tech innovation, demand-upgrading and new technology-driven industrial transformation opportunities, while paying attention to tech barriers, the business model and the cash flow of enterprises,” says Li Jiaqing, managing director and chief investment officer of Legend Capital.

Xu Xiaolin, founding partner and chairman of Huagai Capital, has been engaged in equity investment for 15 years and invested in more than 200 enterprises. He has come up with 4 theories comprising his investment methodology:

1)    Bracket theory. Diversification is the lethal poison for a startup PE/VC firm who should be laser-like focused on its most comfortable industry. The narrower the bracket, the better. 

2)    Mainstream theory. The trend is far more powerful than a single individual. Don’t always think that a man is invincible. 

3)    Practice theory. The best way to learn is to invest real money in person and constantly improve your investment methodology. 

4)    Peace of mind theory. Investment is always about betting, in which quantitative models cannot secure certainty.

Oriental Fortune Capital, the 14-year-old investment manager with over CNY20 billion ($3.0 billion) AUM and over 380 investees, has 10 investment methodologies:

1)    See through the landscape and target the right industry;

2)    Take market-based long-term money only; 

3)    Always earn money from the trend only; 

4)    Specialize the fund and connect services into a platform;

5)    Put the right people in the right position; 

6)    Establish a profiting mechanism that everyone knows clearly; 

7)    Let the ones on frontline who hear the gunfire make the decisions; 

8)    Focus on both sides of the investment; 

9)    Provide help, always; 

10)Stay diligent and earnest.

Chen Wei, chairman of Oriental Fortune Capital, gives his opinion: “Stability is one of our biggest characteristics. We are not the most profitable, but we are always profitable. And we are ready for the next decade with our golden triangle, i.e. return-generating funds, a cohesive team and continuous strategies.

Guangzhou Yuexiu Industrial Investment Fund, which was established in 2011 and currently has over CNY60 billion ($8.8 billion) AUM, is the leading or exclusive investor of 60% of its invested projects. Lu Rong, president of Yuexiu Industrial Investment Fund, has his 5-step investment secret: source, target, invest, manage and exit.

Sourcing needs channels; targeting examines investment managers’ ability; investing is based on recognition and trust between the investment team and startup founders; managing is to offer value-added service for the invested projects; and exiting means the fund can achieve continuous fund-raising.

Meridian Capital, a professional VC, is the leading investor of more than 90% of its projects. “Investing should be deep-rooted, like a banyan tree bursting out of soil, flourishing and growing more roots into the ground. The ecosystem is in constant improvement and the vitality is ever increasing in absorption of more nutrients and sunshine,” asserts Ji Wei, founding and managing partner of Meridian Capital.

Liu Yihao, PE investment partner of Gopher Asset, has his three-step recipe before determining strategies, goals and control points:

1)    Look at the market trend to choose the target industry - information technology is the trend of the future; 

2)    Listen to clients’ demands and their motivation, using the portfolio to disperse risk and reach stability; 

3)    Learn about the environment to spot competitive advantages and conduct self-positioning - secondaries funds are currently embracing a historic opportunity. 

WechatIMG1231.jpeg

Some Final Words

A lesson is learnt from McKinsey the management consulting firm’s conclusion which is drawn from reviewing the world’s leading investment institutions. The conclusion draws the top PE firms’ portrait as follows:

1)    Persistently seek absolute returns to create continuous value for investors, regarding investment performance as the core.

2)    Become capable of investing or managing projects in multiple industries through investment or buyout, and provide one-stop services for investees, so as to meet LPs’ demands.

3)    Strive to become a specialist and focus on the chosen segment, screening self-owned projects rather than sourcing through public bidding.

4)    Sit on the asset manager throne in a certain type of asset class and establish brand awareness.

5)    Grow muscles in fundraising and provide one-stop services for cornerstone investors such as social security and sovereign wealth funds.

6)    Build a professional post-investment management team and an industrial experts’ network to increase investment performance through post-investment value-added services.

7)    Innovate business model to expand into investment banking, structured financing and wealth management derivatives for new growth momentum.

8)    Focus on institutional capacity building: corporate governance, institutional structure, talent management, the investment decision-making process, risk management and information technology are among the lists.

In the past 20 years, Chinese GPs take hard power as the top priority: sizable AUM, diverse target industry, large portfolios and speedy returns etc. However, in the next 20 years, that position will be given to soft power: ESG, investment philosophy, systematic operation, professional management, digital risk control, brand core values and social impacts. If the political and pandemic upheavals of 2020 have taught us anything, it will be that these shifts will come about quickly. And those who can adopt them will thrive.

Referential materials from PEdaily.cn, 21stCentury Business Herald, China Fund News, 36 Kr, TMTPost and Frontline of Tencent News etc.