Heritvest Global: Investing in China amid the era of common prosperity

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This is a sponsored article from Heritvest Global.

 

The unexpected onset of COVID19 outbreak has had disruptive impact on the global economy. Although facing unprecedented challenges, the Chinese economy has shown strong resilience. From the Consumer Internet to the Industrial Internet, the new economy sectors are rising and booming. China has become more attractive to overseas investors, who hope to invest in the Chinese market and enjoy the benefits of China’s new technological development and economic structural transformation.

Heritvest Global was invited to deliver a speech in the annual Asian Private Banker Summit in June. Eleven Ying, Global Market Head of Heritvest Global, pointed out at the meeting, “When making decisions on investing in the Chinese market for a 5-to-10-year period, you need a professional Chinese team who correctly grasps the national economic planning and goals, the government’s original intention and milestones when formulating policies, the core driving force of economic development, the potential competitiveness, etc. Such a team can provide diversified support for institutions investing in China market, in team and the selection of investment sectors, especially with local resources and insights on long-term strategies.”


Eleven Ying – Global Market Head of Heritvest Global, delivered a speech in the annual Asian Private Banker Summit

With the rapid development of China, the market has started to pay more attention to investment opportunities in China, with an increasing number of individual and institutional investors choosing to follow VC/PE, who have a better understanding of China. Indeed, investing in China requires a professional team with insights. Partners with a global perspective and local investment capabilities in China can have a more profound understanding of China’s policies, market development, industry trends, and competitive landscape.

It’s time to seize private equity investment opportunities and invest in China

With the release of the “14th Five-Year Plan”, facing opportunities of the new cycle of global technological development and China’s economic and industrial transformation, investors are to enjoy potential benefits from China’s technological innovation, consumption upgrading and industrial transformation through allocation of private equity investment products. The accelerated development of China’s new economy sectors has also provided private equity funds with more quality assets.

According to Cambridge Associates, the 10-year and 20-year average returns of global private equity indexes reached 12% and 15%, respectively, while the returns of major global stock market indexes during the same period were only 6% and 7%, respectively. The ROI of the former is almost twice that of the latter. However, in the Chinese market, the 10-year return reached 19% (data as of 2018). Historical data shows that, though both considered as equity assets, PE funds have significant excess returns and less volatility compared with secondary market stocks in the long run. Since 1995, the annualized return volatility rate of PE funds is only 4.88%, while the stock market index is as high as 16.21%.

Comparison of IRR between PE funds and the secondary market (as of end-2018)


Source: Cambridge Associate, MSCl, Datastream, CICC Capital Research, CICC Wealth Management Research

Recently, a series of favorable reforms in the capital market encouraged SMEs to increase their capacity for new, distinctive, specialized and sophisticated products. Meanwhile, with the establishment of the Beijing Stock Exchange, the capital market has ushered in a new pattern of 30 years. Reforms including STAR board and the registration system provide broader exit routes for private equity funds.

In addition, though the global pandemic isn’t over yet, economies around the world are recovering, and China is the leading position of global economic recovery. China is the region with the most potential for the development of private equity investment in the world. The next ten years will usher in a golden period for private equity investment in China, as overseas capital is optimistic that new opportunities will continue to arise in China.

A professional Chinese team is a must when investing in China

Peakvest Asset Management, an affiliated company of Heritvest Global, started to invest in China’s new economy sectors fairly early. In 2014, we established the first PE FOF. We are not looking at just a couple of companies, but the entire sector and the underlying logic in the industry, with a bigger picture in mind and long-term planning. Peakvest invests in five major areas, namely financial technology (fintech), cutting-edge technology, corporate services, new consumer product platforms, and digital healthcare. It supports innovation, achievement transformation and the cultivation of high-end technology industrialization projects.

At present, Peakvest PE FOF has partnered with more than 100 leading GPs and indirectly invested in more than 4,000 high-quality start-up companies, and has become one of the largest PE FOFs domestically. Peakvest offers not only effective market-based capital support for domestic technological innovation, but also professional products and services for clients’ private equity asset allocation. From January 1, 2020 to July 30, 2021, among the companies indirectly invested by Peakvest, nearly 300 are listed/NEEQ listed and more than 50 are unicorn companies. In 2021, a total of 54 companies have been listed, forming a robust technology ecosystem.


In 2021, a total of 54 companies invested by Peakvest have been listed

Moreover, we are also establishing industry funds with Chinese SMEs and leading enterprises in the industry, hoping to invest in both upstream and downstream along the value chain and bring startups under the radar for suitable opportunities in the future through M&As. These are key abilities we boast in accessing good projects for overseas investors.

Based in China, Heritvest Global has knowledge and practical experience of China’s new economy sectors and new technology by virtue of its professional team and local advantages. With better grasp and prediction of the domestic market, policies and industries, Heritvest Global has a comprehensive and in-depth understanding of how overseas companies can expand to the Chinese market, with sufficient experience and resources. For example, in the field of commercial aerospace, we invested in Landspace, known as China’s SpaceX. Another leading company that we have invested in is Interstellar Glory Space, the first-ever private space company in China to have successfully launched a rocket into orbit. Maxscend in the chip industry, whose main business focus is the R&D of radio frequency chips for mobile phones, has been successfully listed in China in 2019, with a market cap of over US$20 billion. We have also invested in NIO, Xpeng Motors, and Li Auto in the field of intelligent manufacturing.

It is worth mentioning that the fintech industry fund of Peakvest mainly invests in global fintech companies. The fund was named by CB Insights as No. 9 of the Top Fintech Unicorn Hunter in the World, the only Chinese investment institution in the top 10. The fund was nominated as the Best Fintech Equity Investment Fund at the 6th LendIt USA summit, and was selected as “Top 10 Best Investment Institutions in China’s Fintech Industry” by China Venture Awards in 2020.

Fintech industry fund selected as No. 9 of the Top Fintech Unicorn Hunter in the World

 

Grasp policy trend with a forward-looking investment perspective

In 2021, China has formulated several market policies on anti-monopoly, Internet data security, education, and third distribution, that are set out to pursue a balance between fairness and efficiency. There must have many interpretations of China’s policies in the overseas markets. We can tell from the net outflow of northbound funds from July to August this year that there may have some misunderstandings in the intent of these policies.

On August 17, 2021, the tenth meeting of the Central Committee of Finance and Economic Affairs discussed the pursuit of common prosperity. China’s reform and opening up allowed some people and regions to get rich first. Now, the basic conditions are in place to achieve common prosperity for all. There are two substantive aspects: “prosperity”, the average living standard of all people to reach that of developed countries, and “common”, development opportunities and results to be shared by all. The two elements are equally important.

To achieve common prosperity, we must first be “prosperous (affluent).” Therefore, development always comes first for us to promote social and economic development. China’s economy will continue to grow at a relatively high speed in the next 15 to 30 years, which is a decisive factor for us to achieve the goal of common prosperity. The second keyword is “common (sharing)”, which involves narrowing the country’s income gap to a reasonable range. It should be clear that common prosperity is not a form of equal distribution and we are not looking for the elimination of income gap. Instead, we should ensure fairness and equity. The extent to which it should be reduced depends on the level of social development and consensus of society.

Since China has always regarded development as a priority, economic structural transformation and high-quality development represented by technological innovation, industrial upgrading and capital investment are still the general trend of development. We need to think about how to lead social capital and household wealth into the real economy, and realize wealth appreciation via benefits brought by the high-quality economic development, which is in line with core goal that common prosperity must be based on the premise of “making the cake bigger.”

Only by understanding Chinese policies and grasping the policy trend can we ensure forward-looking investment perspective. Peakvest, an affiliated brand of Heritvest Global, supports innovation, achievement transformation and the cultivation of high-end technology industrialization projects, attracting social capital to provide strong financial backing for venture capital institutions and entrepreneurs. At present, it has partnered with more than 100 leading GPs and indirectly invested in more than 4,000 fastest-growing companies in fields including information technology, high-end equipment, new materials, biomedicine, new energy, energy conservation and environmental protection, among which nearly 300 have already been listed or NEEQ listed with a total of 54 listed in 2021. We are committed to devote our strength and make contributions to the promotion social and economic development.

At present, Peakvest has included social impact as one of the indicators in the due diligence process. When selecting partners, investment capabilities and social impact are both taken into consideration. According to the “PE FOF Social Impact Evaluation Report” released by Peakvest, the return on investment and social influence can go hand in hand, that is, profits and reputation can be achieved at the same. When companies combat the pandemic with advanced technology and cutting-edge solutions, we do not just look at the return on investment, but the sense of accomplishment and social responsibility. During the pandemic in 2020, the Wuhan government built two famous hospitals, Leishenshan Hospital and Huoshenshan Hospital, within only 10 days and 18 days, respectively. Behind this miraculous construction speed, Rootcloud’s technology played a crucial role. Rootcloud collected real-time data from all on-site machines to monitor their status, uploaded the data to the cloud server and performed real-time analysis. Then it fed the analysis to the central management system. It significantly improved the efficiency and coordination among complex mechanical networks, minimized the risk of interruption and ensured the efficient and continuous operation of the machine on the construction site. Rootcloud is one of the companies that the PE fund invested in.

On September 2, the China Securities Regulatory Commission announced on its website the establishment of the Beijing Stock Exchange, with the purpose to deepen the NEEQ reform, giving better play to the function of capital markets to support the innovation-driven development of SMEs.

In fact, China is promoting a financial support system that helps form the growth path for innovative enterprises – 1) the formation of a highly market-oriented primary market financing ecosystem with the participation of the government and social capital, 2) the transfer of stocks for companies from various parts of China, 3) and the listing of companies in the Basic Layer, Innovative Layer of the NEEQ and the newly established Beijing Stock Exchange. During the process, outstanding companies can transfer to the Growth Enterprise Market (GEM) and SSE STAR Market for listing. This is the multi-tiered capital market system that China is building to serve the vast number of fast-growing companies.

As an institution with both abundant local resources and international insights, Heritvest Global has deep knowledge on China’s market environment, policy objectives, economic structure, and industrial environment.

Investing in China –  Heritvest Global is your best choice

Whether you are a family office, from Asia, the United States or Europe, or an ultra-high net worth client, whether you are interested in China’s economic development and investment projects in China, or investment opportunities with scarce resources, Heritvest Global is one of the few professional investment institutions with the capabilities to assist you.

Based in Hong Kong with global perspective, Heritvest Global hopes to establish an effective path to connect the Chinese market with overseas investors, and realize bidirectional communication and exchange of various resources. Boasting not only a global vision, but also a localized professional team, Heritvest Global will be your best partner!

 


This is a sponsored article from Heritvest Global.

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