iAsk: Sense and Sensibility in Investment
In 1992, The Greed of Man, a Hong Kong TV series, was released. The story took place against the backdrop of Hong Kong stock market between 1960s and 1990s. Through the ups and downs of two families and the love and hatred of two generations, The Greed of Man illustrated the entanglement of fame, money and humanity.
In that year, many Mainlanders didn't even know what stock was, and this Hong Kong TV series was shockingly eye-opening. It might be even harder for them to imagine that 26 years later, in the year of 2018, they themselves will no longer be satisfied with having stock as the single investment tool.
In response, a great era of asset management has emerged. According to a report by Deloitte, it is forecasted that China will become the second largest asset management market in 2019 next to the US. It is expected that between 2017 and 2030, Chinese investors will invest an additional 8.5 trillion USD into the asset management industry.
Mighty waters always breed giant fish. In this great era of asset management, “Internet Plus” is bringing profound changes to this industry, and traditional 3rd party management institutions are seeking transformation and upgrading. This is particularly true for the leading asset management institutions. They have already taken the lead in optimizing business layout and technology-driven finance, restructuring their core competitiveness in this new era. In the future race, which factors can enable an institution to run farther and faster? Gloria Ai, founder of iAsk Media, interviewed Xueyuan Han, founder of Hanfor Holdings, a large asset management company founded 12 years ago, to understand how Hanfor is responding to the changing times. Along with them, you will look into the future of asset management.
What enables Hanfor to capture unicorns?
Even with the help of “Internet Plus”, seizing a commanding height in asset management is more than just talking. Among the accomplishments of Hanfor, some are truly solid, such as unicorns.
In November 2017, Razer, one of Hanfor's portfolio companies, went public in Hong Kong, becoming the first e-sports concept stock in Hong Kong Stock Exchange. This is just one of the great investments made by Hanfor. Based on public information, up to now, Hanfor has invested in over 100 companies whose total value is over 1 trillion RMB, including dozens of unicorns, such as NIO, Royole, Urwork, Qihoo 360, renrenche.com, and Changba.
Gloria Ai: Based on what I can see in the list of Hanfor, you have invested in quite a few companies, such as Urwork and Royole, and also Razer, which recently became the first e-sports stock in Hong Kong Stock Exchange. How did you make these investments?
Xueyuan Han: Making investments is mainly about investing in the future. The companies chosen by us are primarily in the fields of AI, Big Health, and consumption upgrade. When we positioned our fund management ten years ago, we decided to focus our investments in these areas. As a result, the unicorns that we have successfully invested in are related to our investment strategy back then.
Gloria Ai: How do you judge whether a company is worth investing in or not?
Xueyuan Han: I think there are several factors. First, we will conduct a fairly detailed industrial study. For industries that we think are going to do well in the future, or industries that have plenty of room to grow, we will do an analysis, which is the most basic. Second, we will look at the team, meaning whether its founding team has the basic elements for successful entrepreneurship. Another thing is that I think investment also involves subjective and perceptual judgment. You need to combine sense and sensibility.
In fact, in a lot of cases, star projects like unicorns are not hard to find. On the contrary, quite often, these projects are very selective of their investors. So why are they always willing to work with Hanfor? According to Xueyuan Han, an obvious reason is that Hanfor can help these companies overcome practical difficulties. “Because we are dedicated to investing in one sector, we can help them solve a lot of problems, and provide value-added services in the upstream and downstream of the industrial chain.” Xueyuan Han told Gloria that apart from providing capital backing, Hanfor also helps these companies conduct planning and in particular, strategic positioning. “Because these entrepreneurs are still in the stage of starting a business, they lack experience in many areas, such as corporate management, talent motivation, etc. And we can help them in all of these.”
Why did Hanfor change its direction of development?
When Hanfor was first founded, its main mission was to help Chinese enterprises go public in the US with its investment banking services. This business boomed with Chinese enterprises' rising enthusiasm of going public overseas and slackened as Chinese concept stocks gradually lost their attraction in the overseas market. In 2011, Hanfor finally decided to take all of its business back to China and “focus on domestic asset management”. In this same year, Hanfor received investments from several investors and raised its first RMB fund.
Gloria Ai: What is Hanfor's total assets under management?
Xueyuan Han: It is around 90 billion RMB at the moment. We plan to exceed 100 billion RMB this year.
Gloria Ai: When Hanfor was first founded in 2006, it started out in the investment banking business. But in 2011 because China concept stocks were terribly shorted, you turned to asset management, and in 2018, you are focusing on equity investment?
Xueyuan Han: I don't know whether everyone is aware of the market back then, but in 2011, Muddy Waters released a lot of news on short-selling and China concept stocks were completed shorted. If I remember corrected, only Vipshop had their IPO that year. No other domestic company went public in the US. For the most part, it was considered unpromising for domestic companies to go public in the US. At that time, the entire team came back to China from Wall Street to work on the domestic market. Between 2006 and 2011, our business was primarily overseas IPO and fund investment. From 2011 till today, during the past six to seven years, we have mainly focused on the domestic market.
However, in fact, our main business has never changed much because asset management is very broad. Fund investment and equity investment are both branches of asset management.
How did a former engineering student start his financial life?
In 1992, a boy from Gansu province who had never seen the ocean passed the college entrance exam with flying colors. Leaving behind his hometown in the northwest region of China, he went to Beijing by himself and became a typical “engineering student”. No one could have foreseen that this boy will become a prominent leader in China's asset management community. Under the leadership of Xueyuan Han, Hanfor is currently managing over 90 billion RMB, with its scope of business covering multiple areas such as private equity investment, industrial direct investments, real estate funds, PPP project investments, private banking business, family trust, ITFIN, financial assets transactions, etc. Hanfor has become a large asset management and wealth management company with a whole industry chain layout.
Gloria Ai: When were you first exposed to the so-called finance?
Xueyuan Han: In 1997, I quitted my job at the time. To be honest, engineering graduates couldn't make much money back then. That's basically how it happened.
Gloria Ai: Was there anyone or anything particularly enviable around you that touched you and made you say, “I have to quit and enter the finance industry”?
Xueyuan Han: Yes, I think it was after I quitted my engineering job and joined a company that did IPO consulting. In the factory that I worked at after graduating, there were several hundreds of designers, and the factory's annual revenue was only 10 to 20 thousand RMB. However, the securities company that I joined only had a team of 7 to 8 people but generated huge revenue. In 1997 or 1998, its revenue was already over 100 million RMB. Since my work was related to IPO and investment banking, when I was serving our clients, I saw their value was even higher. This was very exciting for me and motivated me to tap into all my potential.
Gloria Ai: In your world, the broadening of horizon and the accumulation of wealth are positively correlated, so when did you have the feeling of “I am rich” for the first time?
Xueyuan Han: In 1998, I helped two to three companies with their IPO and received about 400 to 500 thousand RMB in bonuses. Instead of spending the money, I put it into the securities market and invested in stocks. However, unfortunately, I was hit by NASDAQ's Dot-com Bubble in 2000 and lost a whole bunch of money. Out of the 5 to 6 million RMB that I invested in the securities market in 2000, over half evaporated because the market dropped too much.
Gloria Ai: I don't know when that happened exactly, but when half of your 5 million RMB evaporated overnight, what did you think about, what did you reflect on?
Xueyuan Han: I think that in order to mature, an investor has to experience such failures and eventually learn from them because I think it is very hard to learn securities investment from textbooks. Back then, the amount of money was very small, only a few million RMB. Now we are putting several billion or over 10 billion RMB into the securities market, but I think that my conditioned reflexes to the chemical reactions in the market and my understanding of the A-share securities market were initially formed during that time period.
Gloria Ai: On your first day of founding Hanfor in 2006, what did you want to do?
Xueyuan Han: In fact, it was very simple. I just gathered a group of like-minded people. There were only six to seven of us and we mainly conducted investment banking business. To be more specific, it was the kind of investment banking business that helped Chinese enterprises go public in the US or the UK. We mainly worked on that.
Gloria Ai: In today's China, entrepreneurs are everywhere and investors are also everywhere, so you have to have an ace card. Or what was the biggest controversy and doubt that you have encountered along the way?
Xueyuan Han: In fact, making investments in China is very difficult. That is true. I think the investment of foreign-invested funds is relatively easier because they have very strong placing power. It is very easy to get a USD fund. So after we came back to China in 2011, what was the biggest difficulty for me? It was that I couldn't raise any money. I had to talk to investors one by one. I might only get 1 million, 2 million or 5 million RMB from a single investor but the talk took forever. For our first fund, it took us half a year to get 9 investors. The first fund was the most difficult.
20 years ago, Xueyuan Han was the youngest practitioner in the securities market;
12 years ago, Xueyuan Han chose to found Hanfor in 2006 when A-shares market was at an all-time low;
7 years ago, when China concept stocks were shorted as a whole due to Muddy Waters, Xueyuan Han turned around and started focusing on the domestic asset management market.
These three choices forged Xueyuan Han's distinctive financial life.
Which areas have the biggest investment potential in the next 10 years?
In an era of negative interest rate, assets depreciate far quicker than we think. Xueyuan Han stated that choosing the right cycle can reduce the capital's risk exposure while maximizing returns; and doing the right things can minimize the chances of making a wrong investment.
Gloria Ai: When all assets are depreciating, what should we invest in?
Xueyuan Han: We should still invest in assets. We need to look for undervalued assets in the cycle, so in fact, now is a very good time to observe and then gradually enter these investment industries.
Gloria Ai: What is your recommended strategy? The secondary market is too insane and too brutal, and the primary market takes too long. What should we do?
Xueyuan Han: That's why we are focusing more on M&A, because it is quicker. To do investment, I think you need to focus on the two ends. Either we choose the angel end to see whether we are good enough to discover unicorns, or we choose the backend. We have chosen the backend. Our single investment is pretty big. At the backend, we do things related to securities, and conduct M&A investments and market value management in the capital market. It is easy to reach a large volume because you are working with insurance companies, banks and trusts, and through structuring certain products, you can quickly ramp up your capital scale.
Gloria Ai: Where is the future of finance headed?
Xueyuan Han: Finance in the future consists of different areas because finance is huge. For example, our traditional bank credit business will definitely move toward AI. Our dependency on terminals is getting stronger and stronger. However, in the finance sector, there is also investment banking business like equity investment. I think this kind of business still relies heavily on people, because it needs people to make judgments.
Gloria Ai: Based on your judgment, which areas have the biggest investment potential in the next 10 years?
Xueyuan Han: We will mainly focus on big health. There is too much bubble in AI. Most of the AI companies are not worth investing in. For instance, out of 100 AI companies that you invest in, maybe only one or two will eventually succeed. I think you need to base your investment decisions on different areas and regions. I think in China, big health and consumption upgrade will be two great areas.
Gloria Ai: Will this great era give rise to great investors?
Xueyuan Han: I think a great era will definitely give rise to great investors and China is in the middle of this process. The greatness of Buffet does not lie in himself but rather because Buffet found himself in an era of rapid economic growth in the US. If he hadn't become a great investor, someone else would have. I think in China it is the same. In the next 10 to 20 years, finance will be an area with tremendous development.
Gloria Ai: Are you a great investor?
Xueyuan Han: I think I am, and I also have to be.
In the eyes of the outside world, Xueyuan Han has never been a utilitarian. His favorite tag for himself is “a financial worker with over 20 years of experience”. He deeply loves this industry and is dedicated to promoting the innovative development of China's finance industry. He hopes that Hanfor can become a global asset management group that represents the best Chinese asset management institutions and stands side by side with foreign industrial leaders. Never forget why you started, and you can accomplish your mission. Only time can tell whether the dream of Xueyuan Han and his Hanfor could come true.