Hillhouse Capital has raised another 6 billion.

A piece of news has broken the calm of the market.

Ten departments have issued a document supporting overseas institutions to invest in domestic technology companies. This is the most significant and detailed move in recent years to attract foreign investment into the Chinese market, with the most substantial support.

The "Several Measures" not only actively respond to market demands, but also involve various business aspects of overseas institutions' "fundraising, investment, management, and withdrawal," as well as support for supply and demand connection, smooth investment exit, and convenient access to preferential government services.

Of particular note is the mention in the measures of the efficient approval of qualified foreign institutional investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) qualifications, to better meet the willingness of overseas institutions to enter the domestic market.

Some investment institutions have already taken action.

Just recently, Hillhouse Capital announced that its subsidiary, HHLR Management Limited, has completed the fundraising of a secondary market investment fund with a scale of approximately 6 billion, increasing its allocation of Chinese assets and continuing to invest in the A-share market.

Raising 6 billion in one go, this is the largest fundraising in recent years for US dollar investments in the Chinese market.

The ice seems to have broken on the long-frozen lake as the spring thaw begins.

01 Hillhouse Capital, 6 billion to increase A-share holdings

It was learned that Hillhouse's subsidiary, HHLR Management Limited, has recently completed the fundraising of a secondary market investment fund with a scale of approximately 6 billion, increasing its allocation of Chinese assets and continuing to invest in the A-share market.

As an independent US dollar secondary market investment management platform under Hillhouse, HHLR was registered and established in Singapore in 2007 and obtained QFII qualification from the China Securities Regulatory Commission in 2012. (QFII institutions can bring overseas US dollar assets to the Chinese mainland, exchange them for RMB, and then invest onshore.)

In the past, HHLR's historical holdings in A-shares included well-known listed companies such as Contemporary Amperex Technology, Zijin Mining, Gree Electric Appliances, and Wanhua Chemical.

The new fund of 6 billion dollars, what will Hillhouse Capital invest in? To look into the future, we must first look back at history.

In February of this year, Hillhouse Capital disclosed its holdings for the fourth quarter of last year. Data from the U.S. Securities and Exchange Commission (SEC) shows that as of the end of 2023, HHLR held a total of 49 U.S. listed companies, with a total market value of 49.62 billion U.S. dollars, an increase of 10.7% compared to the end of the third quarter of last year.

In terms of holdings, HHLR still favors Chinese concept stocks and has increased its holdings in multiple technology and biopharmaceutical stocks.

According to the disclosed holdings, as of the end of last year, HHLR's top ten major holdings were Pinduoduo, BeiGene, KE Holdings, Legend Biotech, Microsoft, Salesforce, Take-Two Interactive Software, Amazon, Danaher, and DOORDASHINC, with the market value of Chinese concept stocks accounting for over 70%, occupying a dominant position.

Different from the overseas secondary market's preference for internet e-commerce and medical projects, Hillhouse Capital Group pays more attention to opportunities in domestic technological innovation.

Looking at Hillhouse's actions in the primary market. In 2023, Hillhouse focused on new technologies, new energy, new materials, new manufacturing, and life sciences. Data shows that in the past year, Hillhouse's representative projects include liquid flow energy storage, era energy storage, Xinsight Vision, Sige New Energy in the new energy field, ROTOBOOST and Feynman Power in the energy transformation technology field, humanoid robot project Intelligent Element Robot, Nordkai and Tenways (Tenway Technology) in the new manufacturing field, and the life science research and development ecosystem platform Dart Accelerator and the leading peptide drug raw material enterprise Taihe Weiye in the life science field.

In recent years, the domestic primary market has been changing rapidly. On the fundraising side, state-owned assets have become the mainstream limited partners, and on the investment side, hard technology has become the absolute protagonist. Under such changes, various institutions have slowed down their investments and become more cautious in their investment targets. Reducing investment amounts and slowing down investment pace has become the current mainstream business model.

Data shows that in 2023, the number of publicly disclosed investment and financing events in the market was 11,113, a decrease of 24.04% year-on-year, and the total amount of publicly disclosed investments was 720.854 billion RMB, a decrease of 16.12% year-on-year. Domestic financing events have continued to decline for three consecutive years, and the investment and financing events and amounts in 2023 are the lowest in nearly three years.

In the current overall cautious market style, where will Hillhouse invest in A-shares?

A market insider told Rongzhong that based on Hillhouse's layout in China, investment style in recent years, and its past focus areas in A-shares, the new fund will probably target the following themes:

1) Technological innovation will be the most important investment theme in China and even globally in the near future, focusing on investment opportunities of enterprises with strong innovation competitiveness;

2) High-quality assets with structural growth potential;

3) Enterprises with global competitiveness.

As the leader of domestic US dollar funds, Hillhouse's every move attracts the attention of the entire industry. Apart from increasing its investment in Chinese A-shares by 6 billion, many RMB funds have started to prepare for the filing of secondary market funds. A leading RMB fund in Shenzhen revealed to Rongzhong that they have already started to establish secondary market funds in Hong Kong and are simultaneously building an investment team.

In the near future, the number of investment institutions that start from the primary market and extend their business to the secondary market will increase significantly. By simultaneously laying out in the primary and secondary markets, enhancing their own performance and safety net may be the inevitable path from simple VC/PE to large asset management in the next stage.

02 Two major positive news released within a week, will the US dollar funds come back?

April 19th may be a good day, on this day, two major positive news spread to the market.

First, the Ministry of Commerce, the Ministry of Foreign Affairs, the National Development and Reform Commission, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, the People's Bank of China, the State Administration of Taxation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange jointly issued the "Several Measures for Further Supporting Overseas Institutions to Invest in Domestic Technology Enterprises" (hereinafter referred to as "Several Measures").

"The increase in support for overseas institutional investors is worth noting," the above-mentioned person told Rongzhong. "This is a positive signal to encourage foreign investment."

The "Several Measures" mentioned that it will support overseas institutions to invest in domestic technology enterprises through the Qualified Foreign Limited Partner (QFLP) method, and support technology enterprises to make full use of the integrated fund pool of foreign and domestic currencies for cross-border fund centralized operation and management policies to improve fund operation efficiency and reduce financial costs.

In addition, the "Several Measures" will further improve and clarify relevant policy arrangements. Regarding admission applications, it will efficiently approve the qualification applications of Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) in accordance with the law to better meet the willingness of overseas institutions to enter the domestic market.

In terms of increasing financing support, the "Several Measures" actively support overseas institutions and the technology enterprises they invest in to broaden their financing channels and enrich sources of funds for scientific and technological innovation. For overseas institutions, issuing bonds in China, especially Renminbi bonds, can help them supplement their sources of funds and reduce exchange costs.

Moreover, in the investment industry's most concerned issue of exit, the "Measures" proposed to continue to facilitate the overseas listing of technology enterprises.

Regarding the improvement of the exit mechanism, the person in charge stated that the smooth and efficient realization of investment exit is a key issue that overseas institutions have been paying attention to in the early stage of research and is also a key content of the "Several Measures." The China Securities Regulatory Commission and other departments have launched a series of supporting measures for overseas listing, mergers and acquisitions, and share transfers.

For example:

First, support overseas listing.

Second, encourage mergers and acquisitions.

Third, promote the pilot transfer of private equity fund shares.

On the same evening, the China Securities Regulatory Commission issued sixteen measures to serve the high-level development of technology enterprises in the capital market. It provided instructions on issues of concern to primary market investors, such as guiding private equity and venture capital funds to invest in technological innovation, continuously improving trading mechanisms, increasing support for the refinancing of technology enterprises, and optimizing the financing environment for technology enterprises.

The document mentions the optimization of the listing and financing environment for technology-based enterprises. It supports the listing of high-quality, non-profit-making technology-based enterprises with key core technologies, large market potential, and prominent innovation attributes in accordance with laws and regulations. It further promotes the increase of equity asset allocation for various types of medium and long-term funds. It supports technology-based enterprises in listing overseas in accordance with laws and regulations, implements the overseas listing filing management system, and better supports the financing and development of technology-based enterprises listing overseas.

In addition, the document also mentions guiding private equity and venture capital funds to invest in the field of technological innovation. It improves the supervision measures for private equity funds, enriches product types, promotes the development of parent funds, and plays a role in promoting the growth of technology-based enterprises through private equity and venture capital funds. It implements the "reverse linkage" policy for private equity funds, expands the pilot program for physical distribution of stocks and share transfer by private equity and venture capital funds to investors, broadens exit channels, and promotes a virtuous cycle of "investment-exit-reinvestment."

The release of these two major measures has further released positive signals in several aspects of fundraising, management, and exit. "We believe that this will further encourage and support the development of the venture capital industry."

03 Three major giants successively withdraw, market calls for capital entry

Hillhouse Capital successfully completed fundraising in the secondary market, which may be related to the current relaxed policies.

In recent years, overseas funds have indeed become more cautious about investing in the Chinese market.

First, last year, BlackRock, with a global managed asset size of $8.9 trillion, announced the closure of its flexible equity fund in China, reducing its activities in the Chinese capital market. Shortly thereafter, the Norwegian sovereign fund, with a managed asset size of $1.4 trillion, also announced the closure of its Shanghai office.

Two months later, Vanguard Group, with a managed asset size of $7.8 trillion, also confirmed the closure of its office in Shanghai, and the company's name changed from Vanguard Navigation to Ant (Shanghai) Investment Consulting Co., Ltd.

The retreat of the three major asset giants from China is closely related to the declining performance, regardless of the major macroeconomic and international market environment impacts such as the Fed's balance sheet reduction, interest rate hikes, and the Russia-Ukraine conflict.

BlackRock's New Horizon Mixed Fund in China was the first public offering product issued by BlackRock Fund in China, with a fundraising scale of up to 6.6 billion yuan when it was just established. It once became a popular fund. However, in the first quarter of 2023, the fund's scale shrank by 2.6 billion yuan, a decrease of 39.4%.

Not only this New Horizon Mixed Fund, but all 12 funds under BlackRock have seen a decline in net asset value, with none spared, and the highest decline has exceeded 30%.

More importantly, due to poor performance, it directly affected BlackRock's subsequent fundraising. According to data, several new funds issued by BlackRock only raised around 500 million yuan, a huge contrast to the initial glory of over 6 billion. For example, BlackRock's BlackRock Hong Kong Stock Connect Vision Mixed Fund initially only raised 573 million yuan, and BlackRock Pu Yue Fengli One-Year Holding Period Mixed Bond Fund also only attracted 270 million yuan at the beginning. Not only the US dollar funds in the secondary market, but investors in the primary market also became more sensitive to the amplification of risks.

This is also related to investment direction and style.

In the era of internet investment, US dollar investors were the absolute protagonists in the Chinese primary market. Afterward, as the investment trend shifted and hard technology took the stage, investment styles began to change.

All these factors have exacerbated the slowdown of US dollar funds.

"In the current market situation, Hillhouse's raising of 6 billion yuan to aggressively increase A-share holdings not only reflects Hillhouse's determination to continue investing in China but also benefits the active market and boosts investor confidence," the above-mentioned person told Rongzhong.

Now, under the support of the new policies, investors represented by Hillhouse have broken the long-standing ice. There are signs of a rebound in the US dollar fund market. The market is also looking forward to a more diversified capital market under more favorable conditions. Only with abundant funds and active trading can a perfect market environment be formed, promoting the emergence of more innovative opportunities.