#My 2022 Private Equity Year-End Summary#
1. General Situation of Private Equity Investment
I started investing in private equity in 2018. I have invested in a total of 8 products, and I have redeemed 2 of them. One of them was shortly after I bought it. The new fund will be redeemed with the disappearance of the Hong Kong stock market’s new dividend. Currently, a total of 6 private placements are held, 5 of which are long stocks and 1 is macro hedging. In terms of profitability, 5 were profitable and 1 had a slight loss. Since the investment in private equity until 2021, it should be said that the wind has been smooth and the water has achieved substantial profits. Unexpectedly, 2022 became the year of Waterloo for my investment in private equity. The annual investment rate of return reached more than -20%, which was significantly lower than the rate of return of my own stock investment (about -7%). The loss reached more than 30%, and the lowest point loss in the year exceeded 40%, creating the largest loss since I invested in private equity. Last year’s losses greatly reduced the compound rate of return of my private equity investment. Although the rate of return was bleak last year, we have gained a lot of lessons and experience. Investment is a lifelong career. Perhaps short-term difficulties can forge stronger armor, which is a good thing.
2. Lessons and Countermeasures
(1) Lessons: Expectations are too high; countermeasures: adjust positions in time
Lesson: The history of private equity in China is not long. With the structural bull market for three consecutive years from 2019 to 21, private equity has achieved leapfrog development. Most investors have not invested in private equity for a long time, and they have optimistic expectations about the rate of return of private equity that do not conform to the actual situation, and I am no exception. Considering the large investment and high fees of private equity investment, I always feel that the rate of return of private equity is much higher than that of public equity and index. In the initial stage of investing in private equity, I expected the annualized rate of return of private equity to be 20%, and the minimum should not be lower than 15%. Since I started investing in a structural bull market 18 years later, the rate of return in the previous few years basically met my expectations. Precisely because of the high expectations, when the annualized rate of return of holding private equity is higher than 25%, I feel that the achievement of these rates of return is not only due to the beta of the stock market, but also the alpha brought by the ability of the fund manager. rate is sustainable. It is precisely because of this blind optimism that although the fund has already felt the risk at the high point of return, it has not reduced or adjusted its position for a long time, which eventually led to a sharp retracement throughout the year. My actual experience is also a good interpretation of “three times the number of people in one year, and one times the number of people in three years”.
Countermeasure: When you open the ranking list on the private equity investment app, all you see are private equity with explosive short-term yields, many of which have doubled several times in just two to three years or even a few months. However, if the time is extended to 10 years, the rate of return of Lin Yuan, Han Guangbin, etc., which are the top few, is only about 15%. Therefore, for private equity investors, they should recognize the reality and lower their expectations. If they feel that they are optimistic about this fund manager and have no ability to choose the right time, they should hold it for a long time, but the annualized rate of return must be reduced. For me, my countermeasure is, when the short-term return rate of private equity investment is much higher than my expectation and the overall valuation of the index is higher than the average valuation of the past five years, I will appropriately reduce the position of private equity with long stocks , Regular balance, cash out part of the income in time, and avoid a sharp retracement of the income. For private equity, macro hedging, CTA, etc. with strong timing ability, I will always remain vigilant and cash out a small amount of income when the periodic income is relatively high.
(2) Lessons: single structure; countermeasures: multiple configurations
Lesson: Since I am a retail investor and usually speculate in stocks, I naturally have a preference for long-term stock private placements, so most of the positions are long-term stocks. This kind of position structure does not see the risk when the stock market is good, but in the bear market last year, the disadvantages of rising and falling at the same time, and a sharp retracement are undoubtedly revealed. From my personal position analysis, among the 6 private equity, 1 macro-hedging private equity did not rise or fall last year, with the best return rate; 2 long-term stock stocks with a loss rate of less than 10%; 3 long-term pure value investment stock losses Rates are all over 20%, 2 over 30%, and the highest retracement exceeds 40%. Although investing in private equity can’t look at one year’s performance, objectively, due to the excessive annual drawdown, the holding experience is quite bad.
Countermeasures: The key to investment is allocation, and the same is true for private equity investment. As far as my personal investment experience is concerned, due to high fees, inconvenient redemption, and opaque position holdings, it is not easy to outperform stock funds or index funds for a long time after deducting fees. As far as my personal follow-up countermeasures are concerned, I will allocate more stock funds or index funds to replace part of the long-term private placement of stocks. This part can combine the high and low valuations of the stock market, increase the intensity of position adjustment and timing, and respond to various market conditions more flexibly . In addition, compared with public offerings, private placements provide a more diversified asset allocation. In particular, strategies such as convertible bonds, index enhancement, macro hedging, and CTA are lacking in public offerings. With the withdrawal of the investment portfolio, I will increase the allocation of these private placements in the future to make the investment portfolio more stable and the investment experience better.
(3) Lesson: idol halo; countermeasure: calmly examine
Lesson: With the development of self-media such as Weibo, WeChat public account and investment platforms such as Xueqiu, private equity fund managers have more and more channels to speak out, attracting many fans, and many managers have become Internet celebrities, with their own Idol aura. Many investors only buy related private equity products after becoming fans of fund managers. On the one hand, this will help investors better understand fund managers, but on the other hand, it will also make investors overly trust fund managers as loyal believers, and they will not regret it until the relevant private equity products suffer a large loss. In this regard, I have also learned a lesson. Because I trusted the fund manager too much, I invested a relatively large amount of money when the relevant products were released within a short period of time. As a result, the investment has not been paid back for more than two years, but I have been charged a lot of commissions. The holding experience is indeed very bad. Of course, because the investment time is still short, I will not judge the manager’s ability is not good, but it does sound a wake-up call for my future investment.
Countermeasures: Everyone has their own idols, and investing in private equity products of their idols may be a good choice. But the premise is that you should look up to idols and keep calm. If you want to invest in related products, you should observe at least one bull-bear cycle or more than 5 years. If you have already invested in related products, you must not let them go. Because you regularly review the investment logic and operating strategies of fund managers, you must pay special attention to whether words and deeds are consistent, whether your psychological state is stable, and whether you can effectively respond to headwinds, etc., not just Focus on yield. If you find any behaviors such as inconsistency between words and deeds, you should “veto it with one vote” and redeem it in time, and you must not let it go.
The above are some of my lessons and experience in investing in private equity. My experience in investing in private equity is still shallow, and many so-called lessons and countermeasures may be superficial, but they are my real experience. Finally, thanks to Xueqiu and Xueqiu Private Equity, they not only provide you with more private equity products, greatly reduce the cost of investing in private equity (thinking of the fees I was charged on other platforms before, I feel distressed), but also provide you with private equity Investment communication platform.
After a difficult year of 2022, we ushered in a hopeful year of 2023. I wish everyone good health and bright future (money) and future (rabbit) in the Year of the Rabbit.
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