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Speaker Profile:

Huang Shengxuan, CEO of Beijing Taikang Investment

He has 20 years of investment experience and has worked for institutions such as Sunshine Capital, CITIC Securities International, CVC Capital, Credit Suisse Investments, and PwC.

Representative investment projects include SenseTime, Manbang Technology, Smartee Dental, and Weitai Medical.

He has won honors such as "Best Private Equity Investor in China" by ChinaVenture, "Healthcare Investor of the Year" by the Zhuoyue List, "Best Limited Partner of the Year Investment Figure in China" by Rongzhong, and "Best Returnee Investor" by the Fund of Funds Research Center.

He holds a bachelor’s degree in economics from Peking University and a master’s degree in business administration from Yale University.

1. Leveraging long-term capital advantages, insurance funds continue to deploy equity investments

First Financial News Gao Yuan

Thank you Mr. Huang for accepting the exclusive interview with Caixin. Recently, the country has been encouraging long-term and patient capital to invest in the field of new quality productivity. As an investment company under a Fortune 500 insurance company, how do you view the current equity market investment opportunities and strategy adjustments?

Taikang Investment Huang Shengxuan

In the primary market, insurance funds are a major institutional investor because of their large size and long term. The current balance of insurance funds is 30 trillion yuan, and it has maintained an average annual growth rate of 10% over the past 10 years, which is a very large amount.

From the perspective of long-term, the average duration of the entire life insurance industry, including life insurance and health insurance, should be more than 13 years. Excellent life insurance companies such as China Life and Taikang have a liability duration of about 20 years. Therefore, this is a long-term and large-scale fund, which is particularly suitable for long-term investment, value investment and equity investment. Therefore, in recent years, the country hopes to encourage and promote insurance funds to enter the equity investment market.

The insurance industry is also constantly relaxing the scope of insurance funds participating in equity investment. At present, the insurance industry's allocation in equity investment is 1.75 trillion, which is one of the fastest growing categories among major asset classes.

Of course, under this investment situation, insurance funds participate in primary market investment in two ways: direct investment and project investment. In addition, insurance funds are also the source of funds for major institutional LPs. Currently, insurance funds have reached 1 trillion yuan in terms of LP commitments, and are also relatively professional and long-term institutional funds, participating in equity investment by supporting excellent GPs.

2. Under the new situationGPHow to gain the favor of insurance funds?

First Financial News Gao Yuan

Insurance funds are a source of funding for excellent LPs, but in fact, there is a set of data that shows that in terms of fundraising, insurance funds only account for about 10%. Many GPs also reflect that although insurance funds are good, it is actually difficult to get the money. So do you think there is a mismatch problem here? Is there a solution?

Taikang Investment Huang Shengxuan

Yes, insurance funds have liability attributes, so we have liability costs and compensation obligations.

In addition, as a financial institution, it has a set of standards, whether in terms of supervision or the internal system of the financial institution. In fact, everyone in the industry is very clear that there are Document No. 79 and Document No. 101, which have made many regulations on our investment standards. So from this perspective, only the leading institutions in the investment industry can get the money from insurance funds.

But now, raising funds for insurance funds is different from the past 20 years. The strategic emerging industries and hard technology fields promoted by the country are all To B-side, and the track and investment profit methods have also changed.

In the past, China's economy continued to grow, and in fact most institutions earned money from the beta of growth and moved forward with market growth. But now China's economy has shifted from rapid and high-speed growth to high-quality growth, so the beta of economic growth may be relatively flat in the future.

In addition, another source of institutional funds in the past was the valuation difference between the primary and secondary markets, but now due to the adjustment of the secondary capital market, the arbitrage space between the primary and secondary markets is relatively smaller. So in this case, our selection of GPs has also undergone some changes. There are two selection criteria. First, we pay more attention to industrial resources. Whether a GP can truly discover and empower underwater projects in the industrial chain, industrial resources and background are very important;

In addition, on the exit side, in the past, when we did equity investment, most of the exits in China were still achieved through IPOs. Let's look at equity investment in the United States. About 80% of them were exited through mergers and acquisitions of listed companies or mergers and acquisitions of industry parties, and only less than 20% were exited through IPOs. We predict that the Chinese market will also undergo such changes in the future. Therefore, in the new era, the way we choose GPs has also changed. Maybe the successful GPs in the past may not be the successful GPs in the future. We hope that they are more integrated with the industry and have comprehensive exit management capabilities. This is one of our criteria for selecting GPs, so it is still quite difficult.

3. Continuously optimize and consolidate the confidence and patience of long-term capital

First Financial News Gao Yuan

At present, patient capital is actually insufficient in the primary market. We have seen the latest news that the insurance industry's first modern industry fund with a scale of 10 billion has just been established. Is this also a way to expand patient capital? Do you think the amount of patient capital in this industry will grow explosively in the future?

Taikang Investment Huang Shengxuan

From the perspective of venture capital, the country also encourages early investment, small investment, and strong investment. It requires a long-term and value investment perspective. The establishment of this 10 billion fund with insurance capital background is also in response to the country's call to give full play to the long-term advantages of insurance funds to invest in strategic emerging industries. But now it actually faces some aspects that need to be straightened out and improved.

I think it is reflected in the following aspects. First, there needs to be a match between the funding term, because only when the term is long enough can one be more patient.

Second, for our insurance funds, including other long-term funds, the core lies in many assessment and incentive mechanisms, which need to be matched. Because equity is a long-term investment, it is impossible for it to take effect in one or two years, and it may take longer, so the corresponding assessment mechanism must also be matched. For example, the larger mechanism of our insurance funds is the risk factor. Recently, the State Council also proposed in the "Venture Capital Document No. 17" that a more appropriate adjustment should be made to the risk factors of insurance funds investing in strategic emerging industries. Of course, we also look forward to the implementation of specific details.

Because under the second generation of solvency, the risk factor of our insurance funds invested in equity is high. It was 0.28 before, and now it has increased to 0.41. In this case, we need to match more capital in the capital adequacy ratio accordingly. If I invest in equity, but you want to encourage equity allocation, this requires an adjustment.

In addition, from the core of patient capital, there still needs to be a good profit mechanism that can be sustained, have a good return, and a good exit. Of course, the exit channels also need to be diversified, including what we call the second-hand share transaction Secondary Fund (S Fund), including what we call the M&A market. Only when these are connected, patient capital will have a positive feedback and cycle of profit, and will continue to invest. I think there is still a lot of work to be done.

4. A large number of domestic GPs will be cleared out, which may be conducive to the healthy development of the industry

First Financial News Gao Yuan

From the perspective of insurance funds, has a mutually dependent relationship really been formed between LPs and GPs, and is this relationship very close? If so, what is this model?

Taikang Investment Huang Shengxuan

For China's equity industry to become healthy and mature, GPs need to be professional and long-term investors, so that LPs and GPs can form a mutually reinforcing symbiotic relationship. Adjustment and clearing of China's equity market is now taking place. I just mentioned the difficulty of raising funds in the primary market. It means that if an institution's investment performance, understanding of industrial resources and investment capabilities do not meet the requirements, it will gradually become difficult to raise funds and will be gradually eliminated. We look forward to seeing this happen.

Because there are currently about 12,500 primary market managers in China, and less than 3,000 in the U.S. market. I think the GPs that can really develop long-term cooperation with insurance funds are the top 1% in the industry, or about 100 to 200, so that it can form a positive cycle.

Taikang entered the equity investment market relatively early in the industry. We have invested in many funds in many leading funds and industry vertical funds in many markets, thus forming a virtuous circle. Taikang Insurance Group itself has invested in medical care, health, payment, hospitals and other tracks. We actually have a lot of synergies, and we hope to cooperate with GP in industry cognition.

In addition, we also do direct investment ourselves. Of course, the period of our investment may be in the middle and late stages, which can form a mismatch with the funds we invest in. The excellent projects they invest in can be opened to us, which can improve the quality of our direct investment and reduce the risk of direct investment. This is a long-term cooperative relationship.

5. In the era of winning rate, how can insurance equity investment achieve absolute returns across cycles?

First Financial News Gao Yuan

We see that the pursuit of high winning rate and stable returns is actually the goal that many institutions have been pursuing. Taikang has actually entered the industry for a long time and has been doing well. Have you formed your own logical approach and system in the industry?

Taikang Investment Huang Shengxuan

From the perspective of institutional funds, everyone hopes to pursue security, liquidity, and profitability, which is called the "impossible triangle" in our industry. We hope that these three aspects can be achieved at the same time. From the perspective of insurance funds, we attach great importance to what you just mentioned, which is stability and absolute returns.

Now the entire equity investment itself is also changing. We used to call it the era of odds, which does not require a very high winning rate, but allows for a certain failure rate. But now in the era of hard technology, investment is actually a To B business. To B business has a characteristic that its upstream and downstream industrial chain are highly coupled, including the relationship between the supply chain, the relationship between customers and suppliers, and the matching relationship between technology platforms. Therefore, the certainty requirement is relatively high, but the odds may be a little lower. Therefore, we believe that primary market investment has entered the era of winning rates.

How does Taikang do it? Our core strategies are two: first, we call it a three-wheel drive, which are the three wheels? First, direct investment business; second, fund of funds business; and third, the group's industrial resources.

Taikang itself is also arranged around the longevity closed loop, the big health closed loop, and the wealth closed loop, so our medical care and health care business should still be doing very well in China. At the same time, on the payment side, we are also a big health payment scenario, including life insurance and health insurance, so after we have payment scenarios and service scenarios, we have invested in many big health projects. Including technology, products, equipment, medicine, and medical services, all of which can bring us synergy. So in the field of big health, Taikang itself is a strategic investor with industrial resources, so we integrate the three wheels of direct investment, mother fund, and industrial resources to form our characteristics, which can also improve our investment quality and reduce our investment risks.

We actually build three circles around three wheels. The first circle is our circle of competence, the other is our circle of friends, through our parent fund or through our industry partners, and the third ecosystem is built through our investment and through our group to build the industry ecosystem. We will look for leading industry leaders to cooperate with, whether it is launching funds or investing along its industrial chain. Investing along the industrial chain can improve the winning rate and achieve a high winning rate, stable, absolute return, and absolute return equity investment strategy.

6. How to leverage the advantages of the insurance ecosystem to survive the centralized procurement cycle in the medical field

First Financial News Gao Yuan

Taikang already has a national chain of Baybo Dental stores, and you have also invested in projects such as Zhengya Dental. As consumers, we feel that the price of dental implants has dropped significantly in recent years. What is your prediction for the future of this industry?

Taikang Investment Huang Shengxuan

Of course, healthcare is first of all a long and steep track. China's medical expenditure is 8 trillion, maintaining a steady growth. The entire medical industry is facing a major trend of cost control, which is related to the entire national medical system and payment system. Cost control was first implemented in the field of serious medical care, and then gradually entered the field of consumer medical care, such as dentistry and ophthalmology. Dentistry first conducted centralized procurement of dental implants and orthodontics, which pushed down the unit price. In fact, it still had a certain impact and challenge on the entire industry.

Of course, it also brings some opportunities. For example, Zhengya, in which we invested, has become one of the top three invisible orthodontic companies in the orthodontic field. In recent years, the number of patient cases of Zhengya has increased by more than 30% every year. This shows that because of the affordable strategy, there is a huge increase in the number of domestic brands with strong quality and technical capabilities in the mass market.

7. The rotation of industrial cycles requires cooperation with industry leaders to create high-winning industrial chain investments

First Financial News Gao Yuan

In addition to investing in the health sector, you have also invested in the new energy sector. For example, Jinyuansheng is a company in the new energy sector. It will make new energy investments outside the insurance system. What is your prediction for this sector? The valuation of the new energy sector is already very high.

Taikang Investment Huang Shengxuan

Our investment focuses are on the big health field and the hard technology field. In the hard technology field, there are mainly two sub-tracks. One is the dual-carbon track, which is also a huge track with long slopes and thick snow.

Of course, as you just said, all manufacturing industries have an industrial cycle. In the past two years, the industrial cycle of the dual-carbon track has indeed been very intense, and prices have fluctuated greatly due to overcapacity. However, in the long run, the new energy, green energy revolution, and the dual-carbon long-slope thick snow track are very certain, so we must stay with the leader.

Our investment in this track is a landing project of all-round cooperation with Putailai, the industry leader. We have established an industrial fund to support Putailai's dual-carbon industrial chain to invest in the upstream and downstream of its industrial chain. On the one hand, we have a certain guarantee in project acquisition, risk control, and long-term return certainty. As we just mentioned, this is also our industrial chain investment strategy. So for such cooperation, we believe that although the industry is volatile, we are together with the industry leader and will definitely be able to cross the industrial cycle. This is the implementation of a core industrial chain investment strategy in the field of hard technology.

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.

Videographer: Hou Tianyi and Li Wei

Editor on duty: Qisan