History of China's Private Funds-Twenty Years in Retrospect(Year 2016)
The Wild Ride
The year 2016 was a year of milestones and mayhem. On both January 4th and 7th the Chinese stock market experienced a sharp sell-off of about 8% that quickly sent stocks tumbling globally. From January 4th to 15th China's stock market fell 18% and the Dow Jones Industrial Average was down 8.2%.
Also, at that year, the number of private funds with AUM over CNY 10 billion ($ 1.4 billion) had grown to 131, with hedge funds giants like Shanghai Chongyang Investment Management, Springs Capital , Greenwoods Asset Management (景林资产) , 千合资本管理有限公司 , etc. becoming major players in the asset management industry.
The industry was expanding rapidly. The number of private funds professionals had increased from 124,400 to 402,500, and the number of private funds managers registered with 中国证券业协会 had reached 16,500.Private funds management companies were increasingly venturing beyond their traditional focus on secondary market investments, exploring opportunities in primary market, going public, and applying for mutual fund licenses.
?The industry was also looking beyond China's borders, with a growing number of hedge funds seeking to establish a presence in the global market. The "Type 9" license, which allows hedge funds to operate in Hong Kong, became a coveted prize. Shanghai Chongyang Investment Management, 富善投资 , Upright Asset Management etc. were among the firms vying for this license. They either raised Dollar-denominated funds investing directly in the Hong Kong market, or CNY-denominated funds using the Stock Connect program and Qualified Domestic Institutional Investor (QDII) schemes to invest in Hong Kong stocks. The number of hedge funds launched in 2016 that allowed investors to invest in Hong Kong stocks reached 6,258, a 250% increase from the previous year.
However, the domestic market was also experiencing its own version of “Barbarians At The Gate”. The "Bao Wan battle," a high-profile corporate takeover and counter-takeover battle, captured the attention of the entire market. 华润集团 , 宝能集团 , 安邦保险集团股份有限公司 , and 恒大集团 , among other powerful players, engaged in a fierce battle for control of 万科 , one of China's largest real estate developers. The 中国证券监督管理委员会 (CSRC), the 中国银监会 both intervened in the battle, which became a textbook case of corporate warfare. Wang Shi, the founder of Vanke frustrated by the events, wrote on Weibo: "The stock market is a rollercoaster. Barbarians have broken into our home.” 宝能集团 's fund-raising took a very bold and aggressive strategy, circular pledges and huge leverage made Baoneng cash flow to extreme.The battle marked the end of an era and would be remembered as a landmark case that helped to advance China's business civilization.
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This year, deleveraging was officially put on the agenda of regulators, and deleveraging was comprehensively carried out in the areas of capital structure, business promotion, practitioner qualification, and capital pooling business.
The year end result was: A total of 14,636 private funds were launched in 2016. The private fund industry in China had reached a tipping point, with the total amount of capital committed to private funds exceeding CNY 10 trillion ($1.4 trillion) by the end of 2016.
The private funds world in China was a fascinating place, a world of ambition, risk, and reward. The story of China's private equity industry would still be written, and the future held both promise and peril.
(To be continued...)
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