Home >

Dehong Capital Liu Haifeng: Good PE Has No Fear Of Business Cycle, Creating Long-Term Outstanding Return Is Fundamental

2020/12/26 11:36:00 0

CapitalPEEconomyCycleLong TermReturnFundamental

In terms of investment strategy, there are not only traditional holding merger and acquisition transactions, but also minority equity investment of growth enterprises.

"A good PE fund is not only in a bull market, but also in a bear market. It can achieve long-term, stable and cross cycle excellent investment returns through portfolio and operation management improvement." Liu Haifeng, chairman of Dehong capital, said at the 10th annual meeting of China innovation capital in December.

In his keynote speech entitled "China's PE investment market outlook", Liu Haifeng analyzed the changes in the domestic macroeconomic environment, PE investment opportunities in the changing market, and how to continuously create long-term excellent returns across the cycle for fund investors as a PE fund management institution.

Founded in 2017, two founding partners, Liu Haifeng and Hua Yu Neng, led KKR and Morgan Stanley's PE business in Greater China. The investment team led by the two led the first batch of large-scale private equity investment projects in China. The representative cases include China Ping An, Mengniu Dairy, Qingdao Haier, CICC, modern animal husbandry, Yuandong Hongxin, Heng'an international, Baili international, COFCO meat, United environment, Shengnong development, etc.

In terms of investment strategy, there are not only traditional holding merger and acquisition transactions, but also minority equity investment of growth enterprises.

In the investment of Dehong capital, it focuses on five areas from the perspective of industry, including consumption, medical care, finance, Internet, industry and enterprise services.

As of December this year, the investment cases disclosed by Dehong capital include Qiming medical, Zhongsheng group, COFCO meat, Yuandong Hongxin, MFS technology, Jishi capital, Tonghua Dongbao, ape guidance, Haoyun Changsheng, etc.

The prospect of economic development is considerable

In his speech, Liu Haifeng first made an analysis of China's macro environment, including economic growth slowdown, enterprise debt problems, Sino US trade friction challenges, etc. Nevertheless, he believes that the potential of China's consumption and economic growth, driven by urbanization and other factors, is still expected.

After comparing the GDP growth rate, GDP growth, per capita GDP and resident consumption in GDP of China, Japan, the European Union and the United States, Liu Haifeng said that from a long-term and macro perspective, it can be concluded that the sustained growth of China's market will still be very considerable.

"Historically, all major economies will slow down after 20 years of rapid growth, while China's economy has been growing at double-digit rates for 40 years. Even if the growth rate slows down, it is not easy to guarantee a growth rate of 5% - 6%." Liu Haifeng first analyzed that from the perspective of the development of major global economies, it is inevitable that the growth rate will slow down after the rapid development, and it is already excellent for China's economy to maintain the current growth rate.

On the issue of corporate debt, the proportion of corporate debt in GDP in Chinese market has been higher than that in the United States and Japan. Enterprises are troubled by debt repayment pressure in the context of economic slowdown. This factor brings about the necessity of moderate deleveraging.

Let's talk about the challenges of Sino US trade friction. When an emerging economy develops to a certain stage, trade friction is inevitable. In 2019, China's share of global GDP is 16%, which is gradually approaching 24% of that of the United States; 129 Chinese enterprises are listed in the world's top 500, even surpassing 121 in the United States for the first time.

"Although there will be some macroeconomic problems in the past two years, if we look at the long-term cycle of world economic history, China's per capita GDP is only 1 / 6 of that of the United States and its per capita consumption is 1 / 9. China's annual GDP growth is equivalent to the sum of the United States, the European Union and Japan. In the next 10 years, 220 million people will enter cities, equivalent to 2 / 3 of the total population of the United States Very impressive. " In Liu Haifeng's view, China's ongoing urbanization process will bring about sustained growth in consumption and economy.

Holding and growth investment opportunities

In his speech, Liu Haifeng analyzed the market space of China's investment fields such as consumption, medical treatment and science and technology, and pointed out that these market potentials bring about two kinds of investment opportunities, namely, holding merger and acquisition transaction and minority equity investment of growth enterprises.

In the traditional PE industry in the west, holding investment is a typical PE project. However, due to the different development stages between China and foreign countries, we have observed that the number of holding type investment is gradually increasing, and many PE funds still pay attention to growth investment on a large scale.

From the perspective of controlling investment, the past opportunities mainly appeared in the following directions: the separation of multinational companies' Chinese business, the sale of control rights in the iterative process of entrepreneurs, cross-border mergers and acquisitions with Chinese enterprises, and support for delisting of listed companies.

Liu Haifeng pointed out that under the background of slowing economic growth, some traditional enterprises or mature enterprises that have passed the high-speed growth period are more willing to seek excellent PE investors' cooperation than in the past. They expect investors to bring value-added services in addition to capital, and are willing to accept holding or quasi holding transactions to re create shareholder value.

From the perspective of minority equity investment of growth enterprises, this kind of investment opportunities mainly appear in the field of new economy. Statistics show that in the first 10 months of this year, the large-scale growth period investment with transaction amount of more than 150 million US dollars in China's equity investment market increased by 2.3 times compared with the whole year of last year.

"This kind of investment mainly appears in the Internet, health care and consumption areas." Liu Haifeng believes that in the process of market changes, investors can continue to create outstanding returns for fund investors only by adopting better strategies, that is, seizing excellent investment opportunities and not blindly pursuing market characteristics.

Four suggestions for PE Investment

A truly excellent PE fund manager should be able to create long-term, stable and cross cycle excellent returns for fund investors.

In the past 30 years, with international investment experience and localized resource network, the founding team of Dehong capital has accumulated profound industry expertise and solid post investment management ability, and has also created excellent long-term investment returns spanning multiple cycles.

Liu Haifeng shared four suggestions for PE Institutions to go through the cycle.

How can PE fund management institutions achieve cross cycle fund management and investment operation? Liu Haifeng's suggestions include: first, deep accumulation of industry expertise, investment and operation projects with the mentality of industrialists, rather than the short-term capital pursuit of arbitrage oriented. Second, value investment oriented, truly understand the value of the long-term nature of the enterprise. Third, we should treat the transaction structure prudently and actively participate in the corporate governance. Fourth, focus on the post investment operation improvement, and bring value-added for the invested enterprises in the aspects of management improvement, incentive mechanism construction, merger and acquisition, industry integration, etc.

In his speech at the annual meeting of China innovation capital, Liu Haifeng reviewed the investment history in Qingdao Haier and other cases, and analyzed the importance of PE investment institutions in industry insight, value investment, risk control, and post investment value-added.

"Excellent PE investors must be able to bring value-added services beyond capital for the invested enterprises, from supply chain upgrading and digital management to optimizing management process, optimizing incentive mechanism and assisting merger and acquisition projects. All these are what PE investors need to spend their energy on." He believes that PE investors should avoid blindly chasing hot spots in the secondary market. When returning to the essence of value investment, they have a deep understanding of the industry and enterprises before investment and make decisions. After strict due diligence and investment, PE investors operate with an industrialist mentality.

 

  • Related reading

Dong Ximiao'S Column: Promoting The Orderly And Compliance Of Product Sales Of Financial Management Subsidiaries Of Banks

Expert commentary
|
2020/12/26 11:27:00
31

Dinghui Sandwich Huning: 10 Years Of Innovation Based On Through Cycle

Expert commentary
|
2020/12/26 11:25:00
0

2020 Of PE / VC Companies: Fund Raising And Withdrawal Under The Policy City

Expert commentary
|
2020/12/26 11:23:00
0

BASF Zheng Daqing: Adhere To Chemical Innovation And Help Circular Economy

Expert commentary
|
2020/12/24 12:06:00
0

Interview With Pricewaterhousecoopers Chief Partner Li Dan: Accountants Need To Keep "Skill Panic" All The Time Under The Registered System

Expert commentary
|
2020/12/17 12:04:00
4
Read the next article

Zhang Wei, Cornerstone Capital: China'S Economy Is Deep And There Will Be A Number Of Private Enterprises With A Market Value Of 100 Billion Yuan

The theme of Zhang Wei's speech is "deep water fish, big China will emerge a batch of enterprises with a market value of 100 billion yuan". He started with the stories of many Chinese entrepreneurs and shared his views on China