Bao Fan
Author 丨 Cheng Xiaoyi
Editor 丨 Kang Xiao
Produced by 丨Shenwang Tencent News Xiaoman Studio
The fight against the epidemic, the local war, the turmoil in the global financial market... Many "black swan" events have occurred in a very short period of time, and market sentiment has been fragile under great uncertainty. This has made almost everyone think about the same question: Will the world be better?
Bao Fan is a typical contrarian thinker. In the years when the mobile Internet surged forward, he led the China Renaissance Capital team to repeatedly ask himself "is it really that good"; this year, more than 30 Chinese stocks fell by more than 90% from the high, the market value shrank by about 6 trillion yuan, the Hong Kong stock IPO fundraising in the first quarter plummeted by 90%, and the US stock IPO was a rare three-week white paper, and they repeatedly asked themselves "Is the market really so bad"?
Bao Fan repeatedly mentioned the irrationality of the market and the importance of maintaining a normal mind in an exclusive interview with "Deep Web", "Don't be affected by the ups and downs of the outside world, new opportunities still exist."
As one of the earliest bankers and investors in China to support innovative economic companies, Bao Fan and his founding Huaxing Capital have made many judgments that are almost "predicted". For example, in 2010, it was judged that the return of Chinese stocks to Hong Kong/ return to A will become an inevitable trend; in 2015, it was proposed that "as long as it is model innovation, it will not escape BAT"; in 2018, it turned around and changed tracks, plunging headlong into the fields of intelligent technology and new consumption driven by technological innovation.
Bao Fan once described Huaxing as "the largest intelligence agency in the industry." The EARLY FA business is located in the upstream touchpoint of the perception of the innovation economy industry; PE, mergers and acquisitions and other businesses can penetrate into the company and verify the model; and the securities services across the mainland, Hong Kong and the United States bring market feedback. Therefore, Bao Fan's judgment of the trend is of great reference value.
By the end of 2021, China Renaissance Capital's assets under management (AUM) will be about RMB49 billion, with investment in healthcare, new consumption, technology and advanced manufacturing accounting for 99%. In 2021, the net profit was 1.624 billion yuan, and the compound growth rate of net profit in the past three years was 156%.
10 years ago, Bao Fan looked at the project with three major criteria: whether things are promising and developmental; whether they have a strong team; and whether people and things are matched(matched).
After 10 years, Bao Fan still has three major criteria for the project, but it has become: whether it is suitable for the environment; whether it is beneficial to society; and whether the governance model of the project is in line with the current model encouraged by China. "When we invest in a company, we must see whether the values of this enterprise are consistent with the overall values of China."
"China used to be a market, now we have to look at nine very different markets. The value creation in the next 10 years is very different from the past 10 years. In his conversation with Deepnet, Bao Fan shared three certainty opportunities he observed in an uncertain environment: the smart economy, the restructuring of the global industrial chain supply chain, and the change of consumption structure.
The following is the transcript of Bao Fan's dialogue compiled by Tencent News "Deep Net", which has been deleted on the basis of not changing its original meaning.
"Value creation over the next decade will be very different"
"Deep Web": How do you see the phenomenon that it is difficult to raise funds in the primary market and the pace of investment is slowing down?
Bao Fan: There may be several reasons for the slowness, first of all, it is estimated that everyone is not particularly rich in their pockets now, frankly speaking, the entire fundraising environment is not very good, and the estimate that there is still fundraising in the market today is also a minority, so this is an action that has to be taken.
In addition, in fact, many (US dollar) funds in the market now, their main LPs, investors are in North America, and now there have been some changes in the view of China, which is still a certain challenge for them, which is from an objective point of view.
"Deep Web": Has Huaxing also encountered fundraising problems?
Bao Fan: We are relatively lucky, last year's new us dollar (fund) raised almost the same, the latest phase of RMB fundraising has also made good progress.
"Deep Web": The changes in the investment situation now are only cyclical effects, or are there structural changes in the entire market?
Bao Fan: The value creation in the past 10 years can be said to be very different from the value creation in the next 10 years.
There are several aspects, the first so-called innovation point in the past 10 years has mainly revolved around the mobile Internet, at least from 2010 to 2020. But the future is more driven by technological innovation.
Second, the world pattern and environment have also changed. The general trend of globalization in the past 20 years is changing, and it cannot be said that de-globalization is now, at least the process is definitely blocked, and even some fundamental changes are taking place in some local areas. This has a great impact on the global industrial chain and supply chain.
Third, our country's economic growth model is also undergoing some changes. From the pursuit of speed to the pursuit of high-quality development, it has also brought changes to the entire economic structure.
On the whole, it is now (the pace of investment) to be slow, which is an objective point of view, which is not allowed to be done, but from a subjective point of view, it should also be done that way.
When the whole investment logic of the market is undergoing major changes, it is actually time to re-examine, rather than continue the inertia of the past.
Deep Web: Does this mean that investment strategies also need to change?
Bao Fan: If your own investment philosophy is effective, you don't need to make major changes. Because what we do is a long-term investment, it is a cyclical thing.
Because the external environment has changed, we continue to modify our investment logic and investment system back and forth, resulting in some overreactions, which may be problematic in itself. So on the one hand, we should slow down and rethink some problems, but some of the underlying things should not be easily changed.
The market is actually irrational, what is the market irrational? We are all market participants, which shows that those of us are irrational. Therefore, in this market environment, we should pay special attention to our own emotions, and if we are driven by emotions, we will often make some wrong judgments.
If you look at the historical returns of our industry, bear market returns are relatively high, and bull market returns are often low. So as a rational investor, you should invest now. But people are often not rational.
We've always been a contrarian thinker, and when the market was particularly good a few years ago, we repeatedly asked ourselves if it was really that good? Now that everyone in this market feels like they've fallen to the floor, we're asking ourselves if it's really that bad? Say a thousand words, or keep a normal mind, do not be driven by the ups and downs of the outside world, affecting the judgment.
"Deep Web": The shrinkage of the market value of the secondary market will also have a great impact on Huaxing's performance, how to deal with this fluctuation?
Bao Fan: If what you want to do is excess returns, you have to accept short-term volatility. It is impossible to say that you want to earn more than 20% returns, and you do not accept short-term volatility, so why make you make this money? We still have to look at this in the longer term, because we are investing in the long term.
Deep Web: How do you avoid big risks now?
Bao Fan: First, we are quite cautious about the use of leverage, which shows that there is very little external debt. The second is to try to do something less volatile (projects) in the business. Third, don't do something particularly speculative, do something longer.
The cyclical nature of the financial industry is expected, everyone makes money when it is good, and whether it can survive when it is not good is a problem. Most of the accidents are made in the adjustment process, and you have to try to make sure that you don't make mistakes.
"From looking at one market to looking at nine markets"
"Deep Web": At present, the market lacks good investment opportunities.
Bao Fan: Not necessarily. We invest in PE and VC to look at a cycle of at least 10 years or even longer, which is not clear at the moment.
From the time I entered the industry to now almost 30 years, every once in a while, some people say that there is no innovation, there is nothing to invest in, where is the next innovation point. But after a while, looking back, there is still something new.
"Deep Web": In the past, development relied on crossing the river by feeling the stones, and now the stones are almost gone.
Bao Fan: At the turning point of the times, frankly speaking, many things are not clear, but to continue to look, investment is to find certainty in uncertainty.
The Deep Web: What are the definitive opportunities for the next era?
Bao Fan: The intelligent economy, the restructuring of the global industrial chain supply chain, and the change of consumption structure, these three things are relatively certain to us, and there are many innovative things that can be done. Some of the bigger things we can't see clearly now, we can only actively look at and study.
The Deep Web: How to Define the Smart Economy?
Bao Fan: The transformation of the entire economy by intelligent technology is called the era of intelligent economy.
For example, many of the things that nurses do today may be done by machines for you in the future, you may be full of sensors, and there will be people remotely monitoring the core data of your body at any time. The car later became an autonomous driving, and it is also an intelligent thing. I think all of this will become a reality in the next 10 years.
This is quite different from the people-driven thing, and we are sure that this thing will happen, of course, the timing or penetration rate of different industries will be different.
"Deep Web": But now there are still people complaining that there is no chip that can make Android phones stable high frame rate running "Original God" games.
Bao Fan: If you look at it for two or three years, it will definitely be like this, but we have to look at things for more than 10 years. I think with today's IT technology, there is no longer any unbreakable limit, it is only a matter of time.
Deep Web: What are the consequences of de-globalization of the supply chain system?
Bao Fan: The global supply chain and industrial chain will be reconstructed, which was actually a highly coordinated system before, and now it may be cut, and the consideration of the general trend. In the process of refactoring, there are both challenges and opportunities, in fact, the challenges precede the opportunities.
Every economy, especially one as large as China, is thinking about restructuring. In the future, the world may be divided into several different systems, each with its own set of logic and system.
"Deep Web": Reconstruction takes time, the recent dilemma is difficult to solve, and many people are very pessimistic about the future economic development.
Bao Fan: Although there will be difficulties in the immediate future, we believe that China's economy will continue to grow in the future.
Deep Web: What are the dimensions of China's consumption structure?
Bao Fan: There are two latitudes, one is the perspective of age generation, from young people, middle-aged people to the elderly; the other is the perspective of geography, first- and second-tier cities, fourth- and fifth-tier cities, and townships. We can draw a nine-square grid based on these two latitudes.
"Deep Web": Everyone wants to deeply cultivate the Z generation group, but with the current demographic development trend, the population structure in the next 10 years may be that the middle-aged and elderly people account for the majority, and the young people account for a small part.
Bao Fan: China used to be a market, but now we have to look at nine very different markets. And each market is big enough because we have a large population, and each market is big enough to do something.
Second, when we look at Gen Z, we look at the long term more. In the next 20 years, Generation Z will become the most mainstream consumer group in China, and their group of people will drive the trend of future consumption, so it is very important.
In addition, you are quite right, a large number of People in China's future population will retire, over the age of 60. There are several characteristics, the first is that the body is very good, the second is quite rich, the third has time, so they must have to spend, to spend money, just to find something suitable for their consumption.
These people can't pick anything in the market now, they can only buy young people's. With their needs, can there be some corresponding industries out? We are actively researching. Pension is a concept, but these people are frankly not that old.
Deep Web: You've said that ESG (Environmental, social and corporate governance) is the best tool for investing in lightning protection and compliance today. How to understand ESG?
Bao Fan: To put it bluntly, everyone's values must be aligned.
Inconsistencies between the values of your upstream and downstream ecosystem partners can be problematic. In the past, enterprises only needed to consider their own affairs, and now they must take the social environment and values as important considerations, and even constraints. If it cannot be done, it will definitely bring challenges to the development and even survival of the enterprise.
When we invest in a company, we also have to see whether the values of this enterprise are consistent with china's overall values.
As small as a person, as large as an enterprise, they cannot be separated from the social environment, cultural environment and so on. A business in the United States and a business in China are destined to be different because the soil is different. No matter how good a fruit tree grows in the United States, it will not survive in China, and vice versa. People with ability can mutate genes, but such people are rare.
There are many good things in Chinese culture that are very helpful for investment, such as going with the flow. What is homeopathy? You have to follow the trend, don't do the screwwork.
There is also the middle way. What is the Middle Way? Not to go in the right place, but to always find balance in the dynamics. Extremes always appear, but do not go to extremes at any time, even if there is a reasonable truth, it has its limitations. The whole is only applicable within a certain range under a certain scene, and beyond it is not necessarily (applicable).
"Antagonism to Inertia and the Principle of Effectiveness"
"Deep Web": In the past decade, enterprises have pursued high growth, and the next ten years will suddenly slow down to pursue sustainable development, there will be a lot of inertia in the middle, how should enterprises resist inertia?
Bao Fan: There are two kinds, one is that the company will adjust its actions in the process, and the other will be eliminated. That's it, the world is very realistic and cruel.
"Deep Web": How to see the recent adjustment of Internet manufacturers?
Bao Fan: Purely from the perspective of management refinement, I believe there must be room to squeeze. In the case of a relatively sluggish market, everyone will definitely need to make some adjustments.
Deep Web: Big factories are now less tolerant of losses in innovative businesses.
Bao Fan: Frankly speaking, not all innovative businesses have been reliable before, but I believe that there is still room for innovation. Or back to the previous statement, people are the product of emotions, in this kind of environment, the operator will not go to the other extreme.
"Deep Web": Many investors have left the market for new consumption this year, do you think there are still opportunities in this field?
Bao Fan: Definitely there is a chance. But the first two years of new consumption are too hot, there will definitely be bubbles, there will be a process of shuffling.
Deep Web: What are the rules and strategies of the Internet industry that are still applicable today and in the future?
Bao Fan: First, I think it is still effective to attach importance to the organization and people. Companies with good user volume have their own set of effective methods in the organization and people, and they can be used anywhere.
Second, product thinking. Without a product base, there is no point in saying anything about marketing brand channels, and good things have to be made. So what's a good thing? The thinking of making a good consumer product and the thinking of making a good Internet product are actually similar, how to do this with the user as the center.
Third, the logic of creating new business models through the recombination of factors of production still exists.
For example, if more than 50% of the cars running on the street are autonomous vehicles, the business model of the entire automobile and travel industry will definitely change. There's no need to buy a car, it's just a service.
"New energy vehicles are cup competitions, there is only one world champion"
"Deep Web": Now that there is a phenomenon of involution development such as stacking and heaping concepts in the new car racing track, in your opinion, this phenomenon can be avoided, or is it an inevitable process?
Bao Fan: As long as it is market-oriented (industry), the development of the inner volume is an inevitable process. In the end, it is still about the core competitiveness. Whoever has the core competitiveness will be able to survive, and it is inevitable that the big waves will be sandy.
"Deep Web": You once said that any competition is divided into leagues and cups, which kind of new energy automobile industry belongs?
Bao Fan: It's more like a cup game, and I don't think there will be much left at the end.
There are still so many leagues, and the market share is different every year, just like the previous automotive industry. In the future, this industry should be a cup competition, because its threshold is too high.
"Deep Web": Will there be opportunities for investment institutions that miss new cars to invest in automakers in the future?
Bao Fan: I can only say that there are not many opportunities, and it is too late to do this again. Now I want to invest in the automakers is nothing more than running to the perspective of differentiation, but the car industry will not talk about differentiation in the future.
When the league is a league, you can play differentiation, but there is only one world champion in the cup, and the world champion has no weakness in some ways.
"Jump into a longer historical cycle to see the present"
"Deep Web": What is the excitement of doing investment now?
Bao Fan: In the current confusing environment, seeing opportunities that others do not see, and even turning around to prove that they are right, most people are wrong.
Deep Web: From bankers to investors, what is the biggest change in cognition?
Bao Fan: From my personal mentality, the difference is that the breadth of knowledge in investment banking is quite wide, but the depth is not necessarily so deep. And investing requires one thing to be figured out upside down.
The second is the way of doing things, the investment itself should be restrained, the more you invest, the more you may lose, and it is better to be cautious in the case of not being able to see clearly.
"Deep Web": What are the most proud cases you have ever done?
Bao Fan: The next case. I don't really think much about these things, and it's especially important as an investor to clear zero. No matter how awesome or stupid you used to be, after a year it will be cleared, don't let the previous events affect you.
Deep Web: Is there a case that you regret missing?
Bao Fan: There is nothing to regret, investment is willing to gamble and lose. We have a normal heart, normal people to invest may be 55 kai, half right and half wrong. It's good that our decisions can be 64 open, and 4 of them are definitely wrong, and if you accept this, the mentality will be much better. It is nothing more than saying that when it is right, you can earn more and lose less when you are wrong.
Deep Web: How do you stay abreast of the world?
Bao Fan: I am a curiosity-driven person, and I have to think about things I don't understand. In addition, we still have to exert the strength of the team, the outside world has always thought that Huaxing is still engaged in Internet companies, in fact, after 2018, the Internet we almost do not invest.
Now we invest in advanced manufacturing, new energy, medical technology, there are some quite good cases, all because there are many excellent colleagues to join. These people come from the industry and bring us a lot of new markets and new resources. I also learned a lot from them. As an organization, Huaxing has the ability to constantly iterate and evolve, which I am still proud of.
Deep Web: Outside of work, what are the questions you think about the most?
Bao Fan: There seems to be nothing outside of work, all at work. Now that I don't think of it as a job, it's actually fun to think about new and different things every day. At this stage of my life, I certainly didn't work for work. The reason why I did this and I was able to devote myself to it is definitely that I like it.
Deep Web: Is this the case for most investors?
Bao Fan: I don't know. But I think a good investor's underlying psychology should be relatively healthy and stable.
Deep Web: What good books have you seen lately?
Bao Fan: I have recently been intensively looking at some economic history. A lot of what's happening now, we have to jump to a longer historical cycle to see. This year, more like a year in history? I'm in my 50s this year, and it stands to reason that I've been in the industry for 30 years, but I feel that it's not enough just in my personal experience, I need to pull the time dimension longer.
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