First of all, Many thanks for Chairman Tang’s kind invitation. Secondly, it will be the Chinese New Year in three days. Ladies and gentlemen, my friends, I wish you a fantastic new year with health and happiness. Speaking of Chinese New Year, that’s been the happiest day in the entire year for many years in my childhood. Because at that day, children could have new jacket, the family could have meat on table, and I could get some money, sometimes as much as one dollar, if my parents were generous enough, to be my ad hoc expenditure. I’ve been saving that money carefully year over year hoping to be rich someday. With that foolish belief, I’ve been working hard, saving hard, and reinvesting hard for several decades. I believe many of my Chinese colleagues share the similar feelings and experiences with me. That belief is the underlying power that brings us here today, and that brings Chinese economy to such size today. In the past four decades, many people seized the opportunities of rapid development and succeeded.
However, we reached the reflection point four years ago.
On one hand, Chinese economy has slowed down and businesses have run out of cash, on the other hand, our government started the deleveraging process. At such a sudden and dramatic weather change, even dinosaurs can hardly survive.
Now we can see the high non performing loan level, the rise of bankruptcy cases, more and more businesses in distress, and more and more assets change hands. All of the above provide huge, yet different type of, investment opportunities for us. We can invest in the NPL portfolios to achieve high teens return with favorable DPI feature and safe enough collateral coverage, or we can buy some kinds of judicial sale assets at big discount and put good operation team in place to improve its cashflow and then exit to satisfy ourselves by 20+% IRRs, or we can takeover a distressed public or private company, drive its restructuring and make turnaround to chase very high returns.
For NPL investments, we’ve been doing this for 15 years. In the showcase, you can see the real cashflow from our RMB fund I, 300M dollars equivalent in size. We closed it by the end of 2016 now it’s DPI is about 70%. In fact, the dpi features of most of our funds, regardless RMB or USD funds, are way above the first quartile of our global peers. On the other hand, we only invest in highly safe assets with very high collateral coverage.
For auctioned assets through judicial sale process, we can buy properties at very low price. For example, we bought a debt in Nanjing which came with a collateral of a 7-story commercial building and then we took the ownership via judicial sale process and now the property is generating 9.5% yield for us.
For corporate restructuring, especially for public companies, we usually take the controllership for free at the first stage and then drive restructuring to cut debt and make enhancement to its business by a variety of ways. For example, we took the majority voting power of one public company and then introduced a huge SOE conglomerate to make strategic investments to the company and then we change the entire board. As you can see, its stock price has surged 80% in two months since we stepped in while the index remained flat during the same period of time.
As the largest Chinese fund manager specialized in special situation investments, Lakeshore capital’s team has managed 12 funds with 2.3 billion dollars accumulated AUM. In the past 15 years, we have fulfilled our fiduciary duty well: we have invested in 141 portfolios, zero out of which suffered loss.
We believe that it’s the best time to invest in China not only because we see many cheap assets we can buy and hold, but also because we still believe that China will continue to grow, to adapt, and to thrive. Because the Chinese people are still holding that foolish belief that by working hard, saving hard, and reinvesting hard, people can make a better future. With that belief, we will continue to create value for our investors and to fulfill our fiduciary duty well.
Thank you very much!