Summary of Key Points
This year, public funds have shown a significant increase in enthusiasm for participating in A-share private placements, with both the overall scale and returns experiencing substantial growth. However, the returns have been highly uneven: some projects have generated profits of over 500%, while others have suffered losses of more than 30%. The underlying change is that the returns from private placements are no longer guaranteed simply by buying at a discount; they now require a combination of a discount and fundamental analysis of the company’s prospects. In the future, this will place a greater emphasis on the research capabilities of institutions, as selecting the right companies with promising growth potential is crucial to making a profit.
1. How Popular Have Public Funds Been in Private Placements This Year?
The involvement of public funds in private placements has increased significantly compared to last year. As of August 31, 27 public funds have invested in private placements of 90 companies, totaling 45.1 billion yuan (up from 17.3 billion yuan in the same period last year, an increase of 160%). Based on current stock prices, the overall profit from these investments amounts to 3.755 billion yuan, representing a profit margin of 8.32%. In short, most public funds have made a profit from these placements, but not all projects have been profitable.
2. Who Are the Main Players in Private Placements?
Three public funds have invested over 10 billion yuan each, with the electronics industry being the most favored sector:
- Leading Institutions: Caitong, Nord, and E Fund have been the most active, with investment amounts of 14 billion yuan, 13.6 billion yuan, and 10 billion yuan, respectively. Although E Fund only invested in 12 projects, the amount invested in each project was substantial.
- Sector Preferences: The electronics, coal, and power equipment industries have received the most investment, with amounts of 8.8 billion yuan, 6.38 billion yuan, and 6.1 billion yuan, respectively. For example, although there was only one project in the coal industry (China Shenhua), four public funds invested a total of 6.38 billion yuan in it. The electronics industry was even more popular, with Nord participating in all 15 private placements in this sector, and Caitong and E Fund also making significant investments.
- Return Variability: Some public funds have achieved substantial profits; for instance, Cinda Australia only invested in Kexiang Shares, which saw its stock price rise by over 500%, resulting in a high profit margin. However, other public funds have suffered losses, with about one-third of them failing to make a profit.
3. Why Have Some Private Placements Resulted in Losses?
Popular projects have become “traps” due to misalignments between pricing and market trends:
A typical example is Jiangbolong. The private placement was priced at 560 yuan, which was 45% higher than the closing price at the time of the offer. However, the stock price subsequently fell to 362 yuan, resulting in a loss of over 30%. The reasons for this include:
- Pricing at a Peak in the Industry: The private placement was priced on June 29, during a period of strong performance for the storage sector, pushing the stock price even higher due to institutional demand.
- Market Decline During the Lock-up Period: The private placement had a six-month lock-up period, during which the storage sector experienced a downturn, causing the stock price to halve. By the time the funds could be sold, the price was far below the purchase price. In other words, buying at a high point and being unable to sell during the lock-up period led to losses.
4. Is the Strategy of Investing in Private Placements Still Worth It?
Experts and fund managers agree that the strategy itself is not ineffective, but the approach has changed:
- Reduced Discount Arbitrage Opportunities: In the past, profits were easily obtained by buying at a discount to the market price. However, the discount margin has narrowed, making it less effective to rely solely on this strategy.
- Shift to Focus on Research: It is now essential to select companies in growing sectors with strong fundamentals, such as electronics and power equipment. Risk management is also crucial, avoiding concentrated investments in a single sector or project, and preparing for potential market fluctuations during the lock-up period.
- Long-Term Focus on Individual Stock Value: Future excess returns from private placements will come more from the growth of the individual stocks (referred to as “alpha returns”) rather than from market-wide increases (referred to as “beta returns”).
In summary, investing in public private placements is no longer a guaranteed profit-making opportunity. However, with the right approach and thorough research, it is still possible to make a profit. The key is to shift from focusing on discounts to selecting high-quality companies with promising growth potential.