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Guest Profile: Yu Kai, General Manager of Jiangxi Jintou Fund

He has more than ten years of experience in equity investment and has served on the investment committee of many provincial guidance funds and market-oriented funds. He is good at strategic planning of private equity institutions, value mining of industrial chains and equity investment from an industrial perspective, and is familiar with the capital operations of listed companies.

Investment cases: Zhongzi Technology, Haichuang Pharmaceutical, Global New Materials International, Zhonghui Yuantong, etc.

He has won the honors of "TOP 30 Young LP Leaders" and "2024 40 Best Young Investors of Funds Under 40".

He holds a master's degree, is a certified public accountant, has legal professional qualifications, and is a nationally recognized outstanding innovation and entrepreneurship mentor.

Taking the pursuit of landing as the investment goal is putting the cart before the horse

First Financial News Gao Yuan

At present, many local state-owned assets are responsible for attracting investment by local governments, especially local guidance funds, most of which require GPs to return investment, but we know that Jiangxi Jintou does not require GPs to return investment. What is your logic? Is Jiangxi Jintou more tolerant of GPs?

Yu Kai from Jiangxi Jintou

You asked a very core question in the private equity industry today, which is, what is the purpose of investing?

We see that more and more places are participating in the investment field through government-guided funds, attracting investment through investment, and more and more managers are taking money from government-guided funds in various places. However, from the beginning, we set a goal that we will not be a government-guided fund. We will guide funds and enterprises to settle in Jiangxi and serve Jiangxi through market-oriented investment to achieve common development. For us, it is a symbiotic relationship.

At present, half of our invested enterprises may have taken the initiative to land in Jiangxi. Now we have also seen many institutions that take landing as their main investment purpose. We think this is putting the cart before the horse. For production factors, each region can match which factors. Having these matching factors to attract investment will be more effective. The same is true for investment institutions. If you grasp the factors and advantageous resources of the local market, your investment work will not be so difficult, rather than starting from the bidder and shoving the target into the local area for landing. We think such investment is not meaningful, and the landing effect will not be good.

Be a patient capital pursuing DPI

First Financial News Gao Yuan

Although Jiangxi Capital Investment does not require GP to return investment, you have relatively high requirements for GP's DPI (a measure of the multiple of the fund's investment return that investors ultimately receive). How do you understand your logic?

Yu Kai from Jiangxi Jintou

If the investment in the primary market is to prosper in the long term, LPs and investors must see that they can get a return on their investment. We have also seen data from many institutions, including data from some parent funds. Judging from these data, China's venture capital industry still has a long way to go in its development.

In the process of pursuing scale and investment, we also need to strengthen the pursuit of exit and DPI. Through the enrichment of its investment strategy and the ability to continuously optimize DPI during the investment process, we believe that this is the full ability of a team to raise funds, invest, manage and exit, which is a necessary ability for managers. However, the pursuit of DPI does not mean the pursuit of the company's listing.

This year's latest "9 National Regulations" and "17 Regulations on Venture Capital" also reveal the attitude that listing is not the only way for companies to exit, especially listing on the main board and the Science and Technology Innovation Board. In fact, this process requires very high requirements for managers. It requires first to have a judgment on the company's exit channel, second to provide guidance, and third to be able to facilitate the transaction.

Whether an enterprise is suitable for listing on the main board, on the Beijing Stock Exchange, or for exiting through mergers and acquisitions or old stock transfers is a core consideration of the GP's management capabilities. Therefore, the pursuit of DPI is essentially a consideration of the manager's ability. It does not mean that we attach great importance to DPI. This is a good thing or a bad thing. We often joke that we are a patient capital that pursues DPI.

Follow the economic laws and become patient capital

First Financial News Gao Yuan

What do you think about the difference and understanding of patient capital between local state-owned assets and market-oriented capital? Are there any essential differences between them?

Yu Kai from Jiangxi Jintou

We believe that capital attributes will have an impact on investment strategies and exit strategies, and on the pursuit of duration, DPI, and MOIC (multiple returns on invested capital), but this impact is not essential. Because the ultimate purpose of capital investment, regardless of whether it is for the purpose of attracting investment or empowering the industry, is ultimately to pursue value-added and exit.

So from the perspective of state-owned capital, you may understand that it is easier to become patient capital, because the size, attributes, and cost of state-owned capital may have some advantages over private capital. I can only say maybe. So people will have a higher pursuit or demand for state-owned capital as patient capital.

As a state-owned capital, we firmly believe in the concept of patient capital. However, patient capital does not mean that the money does not need to be withdrawn or increased in value. I think this may be a misunderstanding of patient capital by many people in the market. They think that patient capital means investing in this institution for 10 or 15 years, or even not withdrawing. I don’t think this is the case.

The core of patient capital is, first, to abide by economic laws. The development of an economic system, an enterprise, and an industry follows certain laws. We cannot force growth or pursue short-term interests or benefits. We must invest in accordance with economic laws. Second, patient capital must pursue exit and value-added under economic laws, rather than not pursuing value-added or exit.

Long-term layout of lithium resource industry

Make strategic adjustments

First Financial News Gao Yuan

Jiangxi Province is relatively rich in lithium battery resources. You have leading companies such as Ganfeng Lithium. For a considerable period of time, will lithium battery remain your investment focus or first choice?

Yu Kai from Jiangxi Jintou

Jiangxi has natural regional and resource advantages, and is rich in lithium resources in Yichun and other places, so it has nurtured many local lithium battery companies in Jiangxi. Many leading companies have huge industrial bases in Jiangxi.

Our investment, first, will be based on Jiangxi's advantages in lithium resources for long-term layout; second, we will not be limited to lithium resources. First of all, we can see that after the sharp drop in lithium prices since last year, the profitability of the entire lithium industry chain has been greatly affected. A few days ago this year, the lithium price fell to 88,000 yuan/ton. The entire lithium battery industry has actually been under great operating pressure in the past two years, but we are optimistic about this track in the long run.

Of course, lithium batteries in cars are just one of the application areas of lithium batteries. The application areas of lithium battery energy storage will be even larger in the future. Therefore, we believe that there is still huge room for development of lithium batteries, lithium batteries, etc. Therefore, first, we will be firm, and second, we will make some strategic adjustments.

The so-called strategic adjustment is that, first, we will no longer invest in the main materials of lithium batteries, because the main materials of lithium batteries are actually very mature. Second, we will pay attention to some new technologies of lithium batteries, including new positive electrodes, new negative electrodes, new separators, new electrolytes, solid-state batteries, sodium-ion batteries, etc. We have already made arrangements in some sub-sectors.

However, the key issues facing these fields are: first, whether some emerging startups can outperform listed companies in the face of competition from them. Second, the issue of commercialization. They need to bind strong downstream companies to achieve rapid commercialization.

Therefore, in this process, we not only look at the technical capabilities of enterprises, but also their commercialization capabilities. But this is definitely the focus of our future layout, because our investment must also serve the local economy, the Jiangxi 1269 Action Plan, and the development of new quality productivity.

Hydrogen energy is more than just raw materials and batteries

Strategic deployment should be advanced

First Financial News Gao Yuan

One of your investments actually started to develop hydrogen fuel cells a long time ago. I also saw data showing that hydrogen fuel cells will not be commercially available until 2030. Is the biggest competitor of hydrogen fuel cells still traditional lithium batteries? How do you predict the future explosive growth of this industry?

Yu Kai from Jiangxi Jintou

You asked a very good question, and it is also a question we have been thinking about during the investment process.

When we first came into contact with hydrogen energy, we also regarded hydrogen energy as a substitute for lithium batteries, and used it as a hydrogen fuel cell in the car. As we became more and more exposed to the industry, our definition of hydrogen energy went far beyond hydrogen fuel cells.

In fact, we believe that hydrogen energy is a new way of storing energy. It is not only an energy source for power generation, but also some industrial tail gas and waste gas can be stored through hydrogen energy. In fact, if we look at it in a broader sense, it is far more than just being used in the existing application areas of lithium batteries.

The first is the problem of photovoltaic and wind power, because photovoltaic and wind power have daily cycles, and energy storage media are needed to regulate the national power grid. Second, for long-distance transportation of energy, hydrogen energy will also be a long-distance energy transportation method in the future, and it will only be used at the end. Hydrogen fuel cells are just one link in the application of hydrogen energy.

So we see this industry as very big. After seeing it as very big, we will not be too entangled in whether fuel cells can be installed in cars in 2030 or 2032. We are more concerned about the entire industry chain. First, when can the cost of hydrogen production be reduced? Second, we need to see how the cost of hydrogen transportation can be reduced, including how the transportation of pipelines and gas tanks can be reduced. Third, we need to see how the cost of hydrogen use can be reduced. Fuel cells are actually a cost reduction in the hydrogen use link. We are looking at hydrogen energy from the perspective of the entire industry chain.

Enterprises should build barriers during the transformation opportunity period

Not transformation for transformation’s sake

First Financial News Gao Yuan

These companies in the traditional energy chain are not so strong in deploying new energy power. However, one of the targets you invested in is actually in the traditional energy industry chain, but it has already deployed new energy industries very early. Is this a very important logic for you to choose this type of target?

Yu Kai from Jiangxi Jintou

Our investment logic has also been evolving. Our logic for looking at this track is, first, whether these companies have seized the opportunity of transformation in the past few years; second, whether they have formed their own barriers in the process of seizing the opportunity of transformation. Is it a technical barrier? A scale barrier? Or a customer barrier? However, we have seen that many companies did not seize the barriers, but transformed for the sake of transformation.

So when we choose investments, we look at several factors: first, whether the underlying business is solid; second, whether the direction is correct; and third, whether there are the right people on the right path.

Car film and car cover are not a tax on IQ

Market space needs to be improved

First Financial News Gao Yuan

In the field of high-end new materials, its market size has reached about 100 billion. One of the companies you invested in has actually been in this industry for a long time. We also noticed another set of data. At present, the domestic market size of TPU base film for car cover has reached 1.6 billion. Some people think that car film and car cover are just IQ tax. I really want to know how you view the opportunities in this industry?

Yu Kai from Jiangxi Jintou

The key is to see where the individual's needs are and whether it can meet the needs of consumers. Compared with traditional car films, TPU has more significant advantages and characteristics, including durability, scratch resistance and other aspects.

But at the same time, its problem is that it is expensive. If the permeability problem is solved, the price of TPU will actually drop significantly. From last year to this year, we have also paid attention to the TPU industry chain, including upstream particle materials, base films, and downstream brands. Among them, many domestic brands have very good growth potential.

At the same time, from the perspective of midstream base membranes, manufacturers can purchase materials from abroad, and these companies have good performance.

The core issue that needs to be solved first is the upstream material problem. Although there are many domestic companies engaged in upstream materials, they are still in the process of gradual improvement. We would rather drive the downstream from the upstream, improve material performance and reduce costs, and guide the downstream companies to use TPU.

Disclaimer:

The content of this article is for reference only by professional investors. The market is risky and investment should be cautious. In any case, the information or opinions contained in this article do not constitute investment advice to anyone.

Editor on duty: Qisan