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Market sentiment is depressed. How should private equity funds with tens of billions of dollars in assets respond?

As the semi-annual reports of listed companies are released one after another, the latest holdings of several billion-dollar private equity funds such as Gaoyi, Ruijun, and Zhengxin Valley have surfaced. Overall, well-known private equity fund managers such as Deng Xiaofeng, Feng Liu, and Dong Chengfei have actively adjusted their positions. Some billion-dollar private equity funds increased their holdings in industry leading stocks such as Hikvision and Angel Yeast in the second quarter, and some billion-dollar private equity funds have newly entered the top ten circulating shareholders of Xinpengwei and Yuntianhua.

Wu Weizhi, Chairman and Chief Investment Officer of Sino-European Ruibo, said that in an environment of large fluctuations in overseas markets, it is difficult for Chinese assets to rise sharply in stages, but the domestic economic cycle and stock prices have already released risks for a long time. At the same time, A-shares have their own operating logic and cycles. Therefore, investing in A-shares needs to focus on China's economic, monetary and policy cycles.

Regarding the market in the future, Danyi Investment believes that the logic of going overseas is rising in a zigzag manner under the influence of geopolitics, and the corresponding asset prices are also volatile, but the medium- and long-term logic is fine. In the second half of the year, distressed reversal assets may see the largest marginal changes. On the one hand, the fundamentals of such assets continue to be under pressure, and on the other hand, many valuations are already very cheap, and it is possible that the fundamentals will stabilize with the accumulation of stimulus policies.

Gaoyi Asset's latest move

In the second quarter, Gaoyi Asset, a long-established leading private equity firm, continued to take action.

Data shows that Feng Liu significantly increased his holdings in Angel Yeast in the second quarter, with an increase of 26.5 million shares. The Gaoyi Linshan No. 1 Yuanwang Fund, which he manages, held 35 million shares of the stock at the end of the period, with a holding value of nearly 1 billion yuan, ranking as its second largest circulating shareholder.

Angel Yeast's 2024 semi-annual report shows that driven by factors such as the high growth of international business, the company's performance in the second quarter has improved significantly, with both revenue and net profit increasing year-on-year and month-on-month. The company achieved revenue of 3.692 billion yuan in the second quarter, a year-on-year increase of 11.30%; and achieved a net profit attributable to shareholders of 372 million yuan, a year-on-year increase of 17.62%.

In addition, Feng Liu also increased his holdings in Hikvision and reduced his holdings in Baofeng Energy.

The interim report shows that in the first half of the year, Hikvision has made positive progress in the three major areas of enterprise scenario digital transformation business, overseas revenue and innovative business, and the revenue growth rate has recovered to around 10%. Gaoyi Linshan No. 1 Yuanwang Fund managed by Feng Liu also increased its holdings of Hikvision by 1 million shares in the second quarter, with the number of holdings and market value at the end of the period being 412 million shares and 12.735 billion yuan respectively. At the same time, Gaoyi Linshan No. 1 Yuanwang Fund reduced its holdings of Baofeng Energy by 10 million shares, and currently holds 50 million shares with a market value of approximately 867 million yuan.

Deng Xiaofeng, another major figure under Gaoyi Asset, also adjusted his portfolio in the second quarter.

Gao Yi Xiaofeng Hongyuan and Gao Yi Xiaofeng No. 2 Letter Fund managed by Deng Xiaofeng reduced their holdings in Huafeng Chemical by a total of 6.8688 million shares. The total number of shares held at the end of the period was 88.10 million shares.

It is worth noting that Gaoyi-Xiaofeng No. 1 Ruiyuan, Gaoyi Xiaofeng No. 2 Zhixin Fund and Gaoyi Xiaofeng Hongyuan all appeared in the top ten circulating shareholders of Huaqin Technology. Compared with the previous period, the three products increased their holdings by 508,200 shares, and the total reference market value of their holdings was 426 million yuan.

Public data shows that Huaqin Technology landed on the Science and Technology Innovation Board in 2022, becoming the first military coating stock. As the leading stock of stealth materials, Huaqin Technology achieved total revenue of 485 million yuan in the first half of 2024, a year-on-year increase of 27.04%, and net profit attributable to the parent company of 216 million yuan, a year-on-year increase of 17.44%.

Zhengxin Valley favors Yuntianhua and Ruijun's newcomers Xinpengwei

The second-quarter holdings of several private equity firms with tens of billions of dollars in assets under management, such as Ruijun Asset and Zhengxin Valley, also surfaced.

Public information shows that Ruijun Asset is a well-known private equity firm with a scale of tens of billions of yuan. Its core figures include Du Changyong, Wang Xiaoming, Dong Chengfei, etc., all of whom have a certain degree of fame in the industry.

In the second quarter, Ruijun Youfu No. 1 Private Equity Fund and Ruijun Youfu No. 3 Private Equity Fund managed by Dong Chengfei increased their holdings in Lexin Technology. At the same time, Ruijun Youfu No. 1 Private Equity Fund also bought 1.5273 million shares of semiconductor company Xinpengwei, with a holding value of 56 million yuan at the end of the second quarter.

Xinpengwei is an enterprise mainly engaged in the design, research and development and sales of integrated circuit chip products. According to the semi-annual report data, the company's operating income in the first half of 2024 was 453 million yuan, an increase of 17.96% year-on-year; the net profit attributable to shareholders of the listed company was 43.92 million yuan, a decrease of 8.64% year-on-year.

In addition, Lin Lijun, founder of the well-known private equity firm Zhengxin Valley Capital, has newly bought into Yuntianhua. As one of the largest phosphate mining and dressing companies in my country, Yuntianhua currently has nearly 800 million tons of phosphate reserves, an annual production capacity of 14.5 million tons of raw ore, an annual scrubbing and dressing capacity of 6.18 million tons, and an annual flotation capacity of 7.5 million tons. Since the beginning of this year, the company's stock price has risen by nearly 40%. In the first half of the year, the company achieved operating income of 31.993 billion yuan, a year-on-year decrease of 9.16%; net profit attributable to shareholders was 2.841 billion yuan, a year-on-year increase of 6.10%.

Data shows that the Zhengxin Growth Private Equity Fund he manages held 22.4555 million shares of Yuntianhua at the end of the second quarter, ranking as the third largest circulating shareholder.

Private equity funds increase their holdings against the trend

Regarding the future market outlook, some private equity firms with tens of billions of dollars in assets believe that there are strong opportunities for recovery.

According to the data from private equity rankings, as of August 9, the private equity position index for stocks was 79.61%, the second highest in the year, second only to the previous week. In fact, since July 12, the private equity position index for stocks has begun to rise significantly, rising from a low of 77.76% to a high of 80.00%, setting a new high for the year, with an increase of 2.24%.

This means that most private equity firms recognize that the current market is at the bottom.

Judging from the current distribution of private equity stock positions, as of August 9, 59.14% of private equity stock positions were at full positions; 29.09% of private equity stock positions were at a medium level; 10.32% of private equity stock positions were at a low level; and another 1.45% of private equity stock positions were at an empty level.

Recently, Du Changyong, founding partner and executive director of Ruijun Asset Management, said that he believed that the economy is a cycle, and the capital market is also a cycle. When it is at the bottom, we need to be more active. The valuation of equity convertible bonds is at a relatively high level, but the valuation of low-priced debt convertible bonds is very attractive. Danyi Investment believes that in the next stage, investment opportunities will focus on high-dividend assets, overseas expansion, innovation-driven and distress reversal.