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21st Century Business Herald reporter Shen Junhan reports from Beijing

On July 31, 21st Century Business Herald, 21st Century Venture Capital Research Institute and Tsinghua University School of Economics and Management successfully held a closed-door seminar on "Cultivating 'New Quality Productivity': Scientists and Investors on the Road to Innovation", discussing topics such as supporting China's basic science and applied science research, exploring unknown areas, creating social value, extending capital value, and capital helping to transform scientific and technological achievements into new quality productivity.

At the meeting, Cao Long, partner of Hengyu Investment and director of Tsinghua Investment Association, shared his observations on the current status of new quality productivity of long-term money investment in China.

Hengyu Investment is a buy-side investment institution that has long served institutional investors in China, such as social security funds and insurance companies, and assisted them in allocating alternative assets such as PE funds and real estate funds.

Cao Long said that since 2017, China's long-term funds have continued to increase their investment in technology companies. From the perspective of underlying assets, the investment portfolio of new economy companies, which represent new productivity, has increased from less than 20% in the past to nearly or even more than 50% now.

In the past two years, the primary market has fallen into a low period, but the pace of long-term money allocation has not slowed down. Among the RMB funds raised in 2023, the proportion of long-term money has accounted for more than 10%. Last year, the social security fund successively established special funds in Beijing, Shanghai and Shenzhen, which also means that the social security fund is supporting the real economy, promoting technological innovation, and helping the development of new quality productivity.

Although the fact is that long-term funds have been continuously increasing their investment in new quality productivity, the industry has not yet felt the impact. Cao Long explained that the main reasons are:

First, there is still too little "old money" in China, and the surplus wealth accumulated by society is not enough to invest in long-term equity investment. In addition to the continuous investment made by the national social security, long-term funds such as local pensions, supplementary pensions, family funds, and donations do not yet have a certain scale and rarely enter the equity investment field.

Second, there is still a lack of incremental "long money". In the current equity market, government investment funds occupy a mainstream position. However, more than 80% of government investment funds focus on the fund DPI in the fifth and seventh years when evaluating GPs. Cao Long believes that government investment funds in this case cannot be regarded as "long money". Long money should be funds that can extend the duration to more than 10 years and then match risk-return preferences with liquidity return preferences. Only such funds can be truly regarded as patient capital.

In addition, Cao Long pointed out that those working in the equity investment industry still need to "respect the market, respect the laws, and abide by the rules."

First of all, equity investment is a high-risk industry. In essence, the risks are far greater than the benefits. Only by truly understanding and grasping the risks can we truly obtain the corresponding benefits. The market situation in the past two years has fully allowed practitioners to experience the exposure of risks, and it is also a pressure period to test the true strength of various institutions.

Secondly, this market has its own operating rules, and generally speaking, it follows a normal distribution. "Investing in innovation" is a good direction, but if most institutions go for "investing early and investing in small companies", then the market equilibrium will be distorted. From the perspective of asset allocation rules, early-stage allocation only accounts for 20% of the total, but in the past two years, 80% of institutions have been crowded at this stage. Cao Long believes that early-stage investment does not actually require so much capital and institutions, and maintaining a reasonable distribution of risk and return is a market law that needs to be respected.

Again, Cao Long pointed out that investing in China requires not only respect for objective laws, but also compliance with corresponding rules. For example, state-owned institutions must ensure compliance throughout the entire process when investing. Team members should work seriously, without any selfish motives, and stick to the bottom line at the execution level. Only by doing things honestly can we achieve relatively good results in the long run.