Since October 2020, I have been in a group of hundreds of private equity investors for more than two years. I have seen many private equity investors make various complaints due to losses, and some regret choosing to invest in private equity. Investors who have more than ten years of private equity investment experience and have held many famous fund managers even said that “99.99% of private equity with many shares is rubbish.”
According to my observations, these investors have invested in private equity for a certain number of years, and they choose basically recognized excellent fund managers. Most of the reasons for the unsatisfactory returns are lack of understanding of the laws of the stock market, and the lack of short-term performance of funds affects confidence. The action of changing the fund manager is not long enough to hold private equity, and it is easy to miss the best gains including rebounds. It is a natural thing that the long-term annualized rate of return is not good enough.
1. The reason why private placements have been complained about recently.
From 2020 to 2021, there will be a bull market at home and abroad. Many investors are chasing up and buying when the performance of fund managers in the bull market is good. Soon after buying, the stock market turns from bull to bear, and the performance of fund managers in a bear market that lasts for more than a year is not good. Avoided variation. For private equity investors, holding for almost two years is still a loss, which has almost punctured investors’ confidence in fund managers. They think that fund managers are exhausted or that the scale of the bull market is too large to play, and it is easy to make redemptions. decision. Little do they know that it is easy to miss the rebound of the fund manager or the best gains in the subsequent stages. In recent months, I have seen several cases of private equity fund performance rebounding shortly after the redemption of private equity investors.
2. How much is the shortest time for private equity holdings?
My experience in private equity investment for more than ten years is that for fund managers whose investment level has been proven, it is best to hold them for more than three years, so as not to miss the best periodical gains.
For example, in the 11 years from 2010 to 2021, I have only invested in six private equity funds. From 2010 to 2015, I held Zexi, from 2012 to 2018 *He, from 2016 to 2021 *Mountain, from 2018 to 2021 *Feng, *Hang (observation positions), holding *feng in 2019-2021. These six private equity funds are held for a short period of about three years, and for a long period of more than six years. During the same period, they hold at most 4 private equity funds. Calculate the total income based on the redemption amount (after fees), and the annualized rate of return is about 25%. The income of four of the six funds and four private placements has a relatively tortuous process. If I hadn’t insisted on investing for more than three years, I would not have such a high return on the whole.
1. *He Private Equity underperformed the market in the first year of holding, and the excess return was not obvious in the first three years of holding. Many investors in the same period had a lot of redemptions, but I thought there was no problem with the investment level of fund managers. The main investment in the consumer and pharmaceutical industries can definitely be long-term investment, and it will continue to be held until 2018 before redemption. After six years of investment, the annualized return will be about 20%.
2. *Feng Fund, the stock market rebounded in the first half of 2019. Due to the lack of performance, the performance underperformed the market, and the annual performance commission income also underperformed the market. At this time, many investors redeemed. Judging by the release of relevant quarterly reports, the lack of excess returns is not due to a problem with the investment level of the fund manager. It is most likely due to the lack of success and the fact that the sector has not yet come. There is a big market in metals and other industries. In the end, I redeemed with double the income in three years.
It is very interesting that investors who said that private equity with more shares are rubbish, for this fund redeemed when the performance of private equity in 2019 was not good, and after seeing that the performance improved, they bought it again in May 2021 and missed it. A lot of gains.
3. *Air Private Equity underperformed the market most of the time in the first two years of holding, with a maximum retracement of more than 30%. The fund manager was ridiculed in various ways in Snowball, but I know that the fund manager’s research level is not a problem. The US stock bio frontier of investment There is no problem with the direction of the technology industry, so I insist on holding it. In the third year, the performance doubled in a short period of time. I redeemed it in advance when the income more than doubled in three years.
4. *Feng Private Equity performed similarly to *Air Private Equity in the first two years, and the excess return was not obvious, but I had a better understanding of the fund manager’s stock selection ability and investment strategy at that time, and I increased my position many times during the holding process, and held it until the third year ( 2021) when the increase doubled, because he did not agree with the risk of the fund manager’s US and Hong Kong stocks, he began to gradually redeem and transfer the funds to his own private equity FOF, keeping most of the fruits of victory. It is estimated that the annualized return after the investment fee is estimated at More than 15%.
Note: This article hides the name of the private placement to avoid misleading others. If you are interested in the logic of buying or redemption, there will be an article on buying logic in my column in November 2019, and an article explaining redemption in April 2022.
Two points need to be explained here. First, I invest only after I am interested in the industries that the fund managers are good at. I usually pay a little attention to the development information of these industries and know the industry trends. Therefore, when the performance of the fund managers is not good, I have the ability to judge the industry. Opportunities in recent years, so hold on. Secondly, I redeemed all the private equity, it’s not that I don’t invest in private equity. Part of the funds use institutional channels to create my own private equity FOF and invest with some friends who trust me. The performance commission can be reduced by about 16%, and the investment cost is lower. The rest of the funds are invested in industries that I am optimistic about and cannot find no corresponding funds, such as lidar, automotive semiconductors, aerospace, synthetic biology, etc.
3. The reason why private placement needs to be held for more than three years.
This is actually the reason for the operating rules of the stock market and the investment cycle of fund managers. First, based on the history of the Chinese stock market for more than 30 years, the bull-bear cycle is 4-7 years, and the median is about 5 years. The laws of US stocks and Hong Kong stocks are similar. If you hold it for more than two years when the performance is poor, there is a high probability that you have passed the most difficult moment, and it is easy to see the dawn. If you hold it, the stock market will not miss the stage of rebound or the largest increase. The second is that any fund manager with good performance, from discovering opportunities, researching, building positions, and gradually selling, cashing in profits and looking for the next opportunity may take a year or two. Considering that the stock market is rising in rounds in the industry and is unpredictable, it is impossible for fund managers to choose right every time. It is normal for investors to wait two or three years to encounter good opportunities.
Personally, if the assessment concludes that the fund manager is excellent, don’t redeem it because of poor performance for a year or so. It is best to give yourself and the fund manager more time, so that the long-term return may be good. Of course, if the fund manager behaves inconsistently with knowledge and action, or has a problem with illegal operation, he should redeem it immediately.
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