Summary of Key Points
In July, the technology sector (including AI and semiconductors) experienced a significant decline, resulting in poor overall performance for private equity funds, especially those with assets in the tens of billions. However, subjective private equity funds (those that rely on fund managers' experience to select stocks) performed against the trend: not only did nine of these funds with assets in the tens of billions make a profit in July, but they also became the main force behind the new funds reaching this asset threshold (12 out of 15 new funds with such assets). The key to their success was their early heavy investment in sectors with lower valuations, such as finance and consumer goods. Quantitative private equity funds, on the other hand, performed poorly due to slow model responses and delayed portfolio adjustments. Currently, there is a great divide among subjective private equity funds regarding the technology sector; some believe the bubble has burst, while others see it as a long-term opportunity.
I. Private Equity Performance in July: Most Funds Lost Money, with Those with Assets in the Tens of Billions Suffering the Most
The global market, particularly the technology sector, cooled down in July. The A-share Sci-Tech 50 index fell by nearly 26%, and the ChiNext index dropped by 23%. Popular sectors such as semiconductors and AI hardware saw sharp declines, which severely impacted private equity fund performance:
- Overall Industry: 1,939 private equity funds lost an average of 7.65% (equivalent to a loss of 7,650 yuan for every 100,000 invested).
- Funds with Assets in the Tens of Billions: The situation was even worse, with an average loss of 11.71%. Of the 84 funds with data available, only nine made a profit, while the remaining 75 lost money. Fifty-eight of these funds lost more than 10% in a single month, and fourteen lost more than 20%.
In short, most private equity funds suffered significant losses in July, with the top institutions losing even more.
II. How Did Subjective Private Equity Funds Make a Profit?
The nine funds that made a profit were all subjective private equity funds. Their strategy was to avoid the plummeting technology sector and focus on sectors with lower valuations, such as finance and consumer goods:
- Linyuan Investment: Has long been investing in liquor and pharmaceuticals; in July, the liquor index rose by 11.59%, and the pharmaceutical index by 4.29%. Their products earned an average of 16.28%, with some even exceeding 20%.
- Ridou Investment: The founder, Wang Wen, stated in June that they would not chase hot technology stocks. They heavily invested in insurance, securities firms, and banks; in July, the banking sector rose by 11.57%, and their products earned 8.87%.
- Other funds, such as Banxia Investment and Ruipu Investment (which are not among those with assets in the tens of billions), also made profits through investments in sectors with lower valuations.
It's important to note that although these funds made a profit in July, they still lost money for the first seven months of the year. The monthly gains have not yet made up for their previous losses.
III. Contrary to Trends, Subjective Private Equity Funds Saw Growth in Scale
Not only did subjective private equity funds perform well in July, but their scale also increased significantly:
- The total number of funds with assets in the tens of billions rose from 142 to 157 (an increase of 15), with 12 of these being subjective funds (accounting for 80%) and only one being a quantitative fund.
- Some subjective funds saw rapid growth in scale; for example, Shanghai Hexi and Shuipu Fund, which had assets between 2 billion and 5 billion yuan in June, suddenly reached the tens-of-billions category in July.
- Among the 321 private equity funds that increased their scale, 65% were subjective funds.
Why? Quantitative funds struggled because their models failed to adapt quickly to the sudden shift in market trends (from technology to lower valuations), while subjective funds, relying on human judgment, were able to reduce their exposure to technology and switch to sectors with lower valuations in a timely manner, attracting more investment.
IV. Divergent Views on the Technology Sector: Bubble Burst or Mispriced Opportunity?
After the sharp decline in July, there is a split among subjective private equity funds regarding the technology sector:
- Bearish View: Some believe the bubble has burst. For example, Wu Weizhi from Zhong欧瑞博 (Zhongou Ruibo) stated that the decline in the technology hardware sector indicates a bubble bursting, not just a temporary adjustment. Luo Xiao from Harmony Huiyi argued that the previous boom in the technology industry chain is over, and now it's important to see whether companies can convert their investments into actual revenue and cash flow. He also mentioned that midstream manufacturing companies, with their domestic R&D and production advantages, have withstood tariffs and supply chain risks.
- Bullish View: Others see this as a long-term opportunity. For instance, Dongfang Gangwan believes that the AI industry is accelerating rather than slowing down, and the short-term decline is an opportunity for long-term investors to buy in at lower prices.
The market remains volatile in August, with unclear investment trends. The future direction for subjective private equity funds will depend on whether market trends truly shift from technology to sectors with lower valuations or if the technology sector can find new growth points.
In summary, July was a highlight for subjective private equity funds, which bucked the trend by investing in sectors with lower valuations. However, their future performance will depend on market trends and the fundamental changes in the technology sector. For individual investors, this highlights that chasing hot sectors carries higher risks, while sectors with lower valuations can sometimes be more resilient to declines.