History of China's Private Funds-Twenty Years in Retrospect(Year 2015)
Climax
The year 2015 was a year of contrasts. The Chinese economy was booming, fueled by the "Internet Plus" initiative and the "mass entrepreneurship and innovation initiative" campaign. The fourth round of the bull market in A-shares kicked off and Shanghai Campsite Index peaked at 5,178 in June 2015. on April 20, 2015, the trading volume on the Shanghai Stock Exchange exceeded CNY 1 trillion($140.12 billion), leading to a system blowout.
The bull market driven by leverage caused the regulator to panic. on June 15, the third day after the Shanghai index hit 5,178 points, the China Securities Regulatory Commission (CSRC) asked major brokerages to clean up OTC leverage business. For a time, money in the market was like a scared bird, taking the road and fleeing. From June 15 to July 8, 2015, the Shanghai Composite Index plummeted 32% in 17 trading days, causing widespread panic in the market, and stock market liquidity dried up. Subsequently, the People's Bank of China announced interest rate cuts and quota cuts, and on July 9, the national team entered the market to rescue the market.
The first half of the year was a period of euphoria, fueled by the government's ambitious economic plans and a booming stock market. But the second half of the year brought a dramatic shift, with a sharp decline in stock prices and a series of market crashes.The influx of capital had driven up stock market valuations, creating a speculative bubble that was poised to burst.Banks, third-party wealth management firms, and even private funds themselves were struggling to manage the influx of funds.
The private funds industry was riding a wave of unprecedented growth. The number of hedge funds firms with over CNY 10 billion($ 1.4 billion) AUM had doubled from the previous year, reaching 20 firms. These included giants like Greenwoods Asset Management (景林资产) , Springs Capital , Shanghai Chongyang Investment Co., Ltd, Qianhe Capital , etc...
The industry was attracting talent from all corners of the financial world. Hedge funds firms were aggressively seeking to acquire mutual fund licenses, signaling their ambition to expand into the mainstream market. Greenwoods Asset Management invested CNY 70 million($ 9.81 million) in ChangAn Fund Management Company, acquiring a 25.93% stake.
Xu Jin and three of his classmates from Zhejiang University 's computer science department, inspired by the potential of quantitative investment, founded High-Flyer Asset Management Co.,LTD., later known as the renowned 幻方AI .
In 2015, China's private equity fund transactions reached $192.1 billion, an increase of 169% year-on-year, accounting for almost half of the global transaction size.
During the bull market, the lack of due diligence and oversight allowed many private funds to raise capital with little scrutiny, leading to a number of high-profile scandals. JD Capital (SH.600053) , a company known for its aggressive expansion strategy, became the first private fund firm to list on the A-share market through a reverse merger with a company on the New Third Board. However, its rapid growth and questionable business practices would later come under scrutiny.
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Xu Xiang, founder of 上海泽熙投资管理有限公司 , was arrested for insider trading and market manipulation.
The Securities Association of China (AMAC) published two batches of private funds firms that had gone missing or were operating abnormally, including prominent names. Sixteen players vanished from the list of hedge funds with over CNY 10 billion AUM by the end of 2015. This represented a staggering 57% turnover rate, a stark reminder of the volatile nature of the industry.
The storm had arrived, and it was about to unleash its full fury. The year 2015 would be a year of reckoning, a year that would change everything forever.
(To be continued...)
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