History of China's Private Funds-Twenty Years in Retrospect(Year 2005)

The Dawn

The year 2005 dawned with a sense of anticipation in the Chinese financial markets. The shadow of a bear market lingered, with the Shanghai Composite Index opening at 1,260.78 points only to close the year lower at 1,161.06 points. Yet, beneath the surface, a revolution was brewing - one that would redefine the investment landscape and give birth to a new era of opportunity: the spring of private funds in China.

This transformation was fueled by a series of pivotal events. The groundbreaking reform of the share-splitting structure, a legacy issue that had long shackled the market, finally unlocked liquidity and aligned the interests of majority shareholders with market performance. This, coupled with the establishment of a third-party depository system after the China Southern Securities debacle(In April 2005, China Southern Securities was ordered to close down by the 中国证券监督管理委员会 for “misappropriation of customer trading and settlement funds in an especially large amount and under aggravating circumstances, and the misappropriation of customer trading and settlement funds could not be returned, resulting in a serious social hazard”), fostered a sense of trust and transparency, laying the foundation for a more robust and investor-friendly market.

Innovation became the watchword as the financial sector embraced new possibilities. Commercial banks, including China Everbright Bank , 中国民生银行 , Industrial Bank and 招商银行 , were granted permission to establish mutual fund management companies, heralding the rise of bank-backed players in the secondary market. This move, alongside the burgeoning asset-backed securities (ABS) market, marked a significant shift towards a more sophisticated financial system.

In 2005, Shanghai Stock Exchange and Shenzhen Stock Exchange launched the CSI 300 index, and mutual fund companies soon launched index funds based on the CSI 300 index. The number of private funds increased to more than 200 from the double-digit number in the previous year, and the local private equity gradually rose, ushering in the first spring breeze for China private equity funds and venture capital funds.

Amidst this dynamic backdrop, a new breed of financial pioneers China Private Equity Funds emerged, sensing the winds of change. Young and ambitious individuals like Mr.Shen Nanpeng(Neil) and Mr. Lei Zhang took the leap, founding what would become giants in the industry Sequoia Capital China and Hillhouse Investment , respectively.

Mr. Wang Qiang, having honed his skills in overseas investments, returned to his roots, establishing Pinpoint Asset Management Limited in Hong Kong, a fund destined for legendary "ten-bagger" status. ?Mr. Erhai Liu , Executive Director of Legend Capital君联资本 apital found his perfect match in Mr.Lu Zhengyao, sowing the seeds for what would blossom into a decade-long success story with Joy Capital .

As the year drew to a close, the Shanghai Composite Index, having briefly dipped below the 1000-point mark(998-point on Jun 6th, 2005), staged a remarkable recovery, hinting at the bull market that would define 2006 and 2007. GF Fund Management Co., Ltd.'s GF Steady Growth Fund(F.270002), under the helm of Mr.He Zhen, achieved a remarkable 16.93% net value growth with its flagship fund, becoming a beacon of success in 2005.

The stage was set, the overture played, and the curtain was about to rise on a remarkable period of growth and transformation for China's private funds industry. The question was, how would this new generation of financial players script their roles in this unfolding drama?

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(To be continued...)

Reference：

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1. Shenzhen Stock Exchange annoucement of launching the CSI 300 index：沪深300指数即将正式发布 (szse.cn)
2. People's Bank of China, 2005, “Administrative Measures for the Pilot Establishment of Mutual Fund Management Companies by Commercial Banks”: 1.?? 中国人民银行 中国银行业监督管理委员会 中国证券监督管理委员会公告　（〔2005〕第4号）　　商业银行设立基金管理公司试点管理办法__2005年第29号国务院公报_中国政府网 (www.gov.cn)
3. Profile of Mutual Fund Manager Mr.He Zhen: https://fund.eastmoney.com/manager/30036305.html