The fund is called "Internet and Medical Hybrid Private Equity Fund A" and is the parent fund (FOF). The fund-raising institution is Beijing Geshang Fuxin Investment Consulting Co., Ltd. The investment threshold is 6,543.8+0,000 RMB. Because FOF invests in private equity funds, the liquidity of funds is relatively high and it needs to be locked for at least 8 years (redemption is not allowed during the period).
Friends who have read some of my articles know that one of the most important investment principles that this column has always emphasized is to control costs. In my opinion, investors should shop around and haggle over every ounce when choosing wealth management products, just like an aunt going to the market to buy food. If the cost of a wealth management product is too high, let its publicity materials be blown again, and rational investors should carefully consider buying it again.
The above table lists the expenses of the fund. We can see that if investors want to buy the fund products, they need to pay the subscription fee of 1% first. In other words, if he bought 6.5438+0 million yuan, he actually invested only 990,000 yuan after deducting the subscription fee. Secondly, the fund has no management fee at the parent fund and fund level, but it has an annual management fee of 0.5% at the partnership level. In terms of custody fee, the total custody fee at the fund and partnership level is 0.25% per year. At the same time, there is a 10% performance share at the partnership level.
Such a fee structure is a bit complicated, and many "small white" investors may not understand it. So I'm going to take a moment to explain. The charging items of the fund involve three concepts: fund, parent fund and partnership enterprise. Why are so many different units involved? The main reason is that the fund structure is complex.
The above picture shows the legal framework involved in the fund. We can see that investors buy funds and buy NO. Answer or not answer. B (green box above) is the "fund" mentioned above. Then the investment of A or B will be classified into the parent fund (FOF, yellow box above). The custodian of the parent fund is China Merchants Securities, and the fund manager is Geshang Finance.
Then through the limited partnership (the blue box above), the parent fund will invest the funds in different private equity funds (that is, fund 1 above, fund 2 and fund 3) to complete the investment.
Compared with the general FOF structure, this structure has two more layers. The first is the green part of the above picture: the mixed private equity funds A and B of Internet and medical care. Because of the simple structure of FOF, investors only need to put their funds into the parent fund (the yellow box above) without adding an extra layer.
Then there is the blue part of "limited partnership" because a standard parent fund directly invests its funds in the fund of its choice (that is, the bottom fund box in the above picture). This FOF adds a layer of limited partnership to it. So it will make some investors feel a bit complicated.
Why this structure is so complicated is not explained in the publicity materials of the fund. There are many possibilities, because there are no more materials and evidence, so I won't speculate here. From the investor's point of view, what we need to know is whether these extra structures increase my investment cost and what is the total investment cost I will eventually pay.
Going back to the above fund rate table, we can know that investors need to pay 1% subscription fee, 2.75% annual management fee (FOF+ fund management fee) and 30% investment return when purchasing the fund.
According to the above rates, we can do a simple investor return analysis. Assuming that the return of these funds they invest in is 20% of the unpaid expenses every year, after deducting these expenses mentioned above, the net return that investors finally get is about 1 1% every year, and the other half is divided by other financial institutions. However, if the annual return before expenses is 10%, the net return for investors will be about 4% per year, which is less than half of the initial return before expenses. In other words, the worse the investment returns of those funds, the less the investors will get in the end, because many other fixed expenses (such as management fees and custody fees) are indispensable.
We can also analyze it in reverse: if investors expect to get an annualized return of 15% in the fund, then the pre-investment return of these private equity funds needs to reach at least an annualized return of about 30%. Only when the expenses reach the previous 30%, then after deducting these expenses, our final investors can get a net income of about 15%.
Then the question is, can these private fund managers who invest in China find investment projects with an annualized rate of about 30%? Note that this refers to real money, that is, the real return on investment when the project exits after eight years.
Publicity materials that encourage investors to buy private equity funds always list some myths about making wealth. For example, if you voted for Alibaba or JD.COM XX years ago, you may get XXX times the return. In hindsight, it is not difficult to pick out a few winners whose share prices soared. But the challenge for investors is to find the next Alibaba or JD.COM. This is quite another matter.
According to the publicity materials sent by Geshang Finance to investors, by the end of 20 16, there were about 28,000 private equity funds in China, of which about 7,000 only had investment records, and at least 164 1 fund had withdrawn from at least one project. In other words, less than 10% of the funds eventually withdrew from at least one project.
Of course, there is also a realistic factor, that is, private equity investment is an asset class with a long cycle, which generally needs to be locked for 5 years, 7 years or even longer. Those funds established in the last seven years are naturally unlikely to withdraw from the project, so there is no way to judge the investment performance.
At the same time, even if a project exits, it is still difficult for investors to judge the total income of the fund. Because quitting doesn't mean making money, discounted transfer is also considered quitting. In this case, it is difficult for investors to judge whether a private equity fund is worth investing.
Among the publicity materials of private equity funds, "successful cases" are shared by fund managers. Our fund invested in "Didi Chuxing", "Today's Headline" or "Magic Bicycle" in XX years, and gained XX times return from this case. The problem is that for investors, what matters is not which successful case you voted for, but your overall performance. In order to invest in a "Didi Chuxing", you may have invested in hundreds of projects. We are more concerned about the overall performance and success rate of these investments. But unfortunately, because private equity funds belong to private equity funds, the requirements of government supervision departments for their information disclosure are not very strict, so few people can obtain accurate information in this respect except the fund managers themselves. On this issue, this column history article common misunderstandings of private equity investment (/p/? Reference = WZjevidence) has a more detailed analysis.
Then, going back to the question that investors asked at the beginning, is there a great probability of losing the principal of VC FOF, a decentralized venture capital? Private equity investment is a high-risk investment that has never been guaranteed, so it is of course possible to lose the principal in the end. In fact, in the publicity materials of the fund, it is clearly written in black and white:
The fund manager does not guarantee that the principal of the subscription funds in the fund property will not be lost, nor does it guarantee a certain profit and minimum income.
If investors buy such funds with a certain profit mentality from the beginning, they will eventually suffer investment losses, which is likely to cause a scandal similar to the Banyan incident in noah wealth. For the story of this incident, please refer to the historical article "The Banyan Event: Is noah wealth Guilty?" 》(/p/).
So how does investing in such a parent fund compare with the average income of those fixed-income trusts? This depends on the investors' expectation of income from trust investment. Assuming that the expected return of trust investment is about 10% per year, then according to the above calculation, the upfront fee return of private equity funds needs to reach about 20% per year, otherwise it may eventually disappoint investors. As for whether the fund managers who invest in FOF can achieve a return of 20% or even higher, it is a question full of "gambling" and uncertainty: it depends largely on the luck of investors and FOF managers. In China, no private FOF is willing to disclose the true returns (after deducting fees) of all its past funds. Sometimes, even if it is published, only a few good cases are selectively selected to share with you. Therefore, when investors choose and compare these FOFs, they can't analyze them according to the real income and evidence in the past, but just take a chance and "choose blindly".
At the same time, investors need to understand that liquidity is very important to any investor. Once the money is invested in such a fund, it will not be used for the next eight years. Therefore, for investors with insufficient financial resources or unclear estimation of future capital needs, he needs to remind himself repeatedly of the risks brought by this investment.
Some friends may say that the fees you mentioned above are not just one. As long as it is a private FOF, its fees are basically the same.
This is indeed the case in China at present, which is also the risk that China investors need to know before investing in private equity funds. In other words, the target of your investment is a product with low transparency, poor liquidity and high cost. In the end, whether an investor makes money or not has a lot of luck, that is, "taking chances." Of course, this does not mean that these private FOFs can't make money or are not suitable for investors.
In all fairness, third-party financial institutions and FOF managers like Geshang still have certain advantages over those "little white" investors who know nothing about private equity funds. At least these FOF managers are familiar with their chosen fund managers (GP) and have certain data and information to help them make more accurate judgments. Without this information, an amateur investor may only follow the reputation of the fund to buy. For example, big-name funds such as Sequoia and IDG have all been heard of, so you may feel more at ease when buying them. But the problem is that these big-name fund companies often issue many funds, and each fund is different. Sometimes a fund manager has to manage multiple funds, so the performance of different funds varies greatly. On this issue, this column history article "Can Bain Capital Help You Make Money? (/p/) has a more detailed analysis.
In this case of extremely asymmetric information, investing in such private equity funds through FOF can really help investors screen out some obviously unreliable funds. However, there is no free lunch in this world. If we want to rely on FOF managers to help us screen fund managers, then investors also need to pay a certain fee. Whether the final investor can get the expected return on investment after deducting these expenses is another matter. Investors need to comprehensively consider the information received, think independently, try to filter out the emotional influence of fund salespeople and make their own calm and rational judgments.
I hope it will help everyone.
Wu Zhijian's new book "The Investment Wisdom of Little Turtle: How to Overcome the Strong with the Weak in Investment" has finally been put on the shelves. In JD.COM, Taobao, Amazon China or Dangdang, you can buy this book by searching for its title or author's name. Or you can click here to buy this book.