As a state-owned enterprise with trillions of funds, CR Group exceeded two trillion in the total assets for the first time and reached a record high of 769.2 billion in revenues and 60.1 billion in net profits in the past 2021. CR Capital Management, as the operation and management platform for the CR Group’s industrial funds, plays a creative role in broadening the reach of CR's business and exploring new resources and external impetus for the diversified industrial group.
CR Capital Management conducts business closely around the Group’s industries, and it has invested in healthcare, consumer products, integrated urban development and operation, energy service, technological innovation and environmental protection in domestic and overseas markets. CR Capital Management operates 24 funds at home and abroad and three investment platforms, managing assets totaling RMB 119.1 billion in all.
How does CR Capital Management give full play to CVC to boost the innovation and development of the CR Group? In an exclusive interview with the Securities Times, CR Capital Management's General Manager Carl Qin frequently mentioned that "Invest with the industry mindset and make the Group's strategies as the guideline of investment". Every investment CR Capital Management has made is strongly tied to the industries of the CR Group.
Root Financial Investments in Industries
CR Capital Management conducts investment based on the CR Group, same as all other industrial capitals. What makes CR Capital Management distinctive is that it has more diverse industries and thus has stronger industrial support. However, those fields CR Capital Management has stepped into based on the main business of CR Group are highly competitive. It's a hard task for CR Capital Management to conduct financial investments by grasping the industrial advantages with long-term exploration and constant practice.
"We see the enterprise not only from the financial data, but also from every detail of the enterprise's operation." Carl Qin thinks that it's the biggest difference between the industrial investment and venture capital of CR Capital Management. The main reason why it applied the industry mindset to investment is that the general partnership companies of industrial investment funds launched by CR Capital Management are composed of CR Capital Management and CR Group. Carl Qin said that most funds of CR Capital Management are jointly funded by "CR Capital Management + Industry Companies + Market-oriented Partners", in which CR Group contributes not more than 25% of the fund, including CR Capital Management and industry companies, and market-oriented partners contribute to the rest 75%.
Besides, with the co-decision mechanism of "Industry + Finance", as a subsidiary of the state-owned enterprise, what is critical for CR Capital Management to stand out from the competitive market is its full empowerment of investment decisions from the CR Group. "We invested over 70 projects last year, and all of them were efficiently conducted following the decision-making mechanism." He told the reporter. According to Carl Qin, CR Group granted CR Capital Management to conduct independent investment, by which a set of investment decision-making procedures has been preliminarily set for fund approval. CR Capital Management is highly autonomous to conduct the investment businesses within the authorized scope.
Even though it seems perfect for CR Capital Management to boast strong industrial support and full empowerment, problems still exist when integrating the industries and finance as they have different logics that require us to operate with unique thinking. He admitted that they have to work hard on the integration of industries and finance through the decision-making mechanism. "Operating industrial funds is more complex than simply working on industries or funds. We need to take into account competition between indus tries, ways to avoid competition, and industrial synergy while juggling asset allocation, portfolio, and investment returns." He said that every member of the Investment Committee is free to voice their opinions when making decisions on projects, and then the project decision is made in proportion to the total number of votes.
He thinks that opinions on industries are crucial to investment decisions. He said, "Funds can be more competitive in the market when centering on industries, tools for financial investment are implemented to make decisions on a project". According to Carl Qin, after the 13th Five-Year Plan, industry companies of the CR Group tend to empower industries by fund investment. During the 14th Five-Year Plan, CR Capital Management grants industry companies more investment management rights while it focuses on exploring and incubating new industries and new profit growth sources.
As for the strategic planning of CR Capital Management for the 14th Five-Year Plan, it gives priority to Investment-exploring businesses, assists the CR Group with cultivating one or two new economic growth sources, and invests in new businesses and fields excluding the CR Group's existing businesses.
CVC is an investment tool for win-win.
More and more industry groups and listed companies step into the industrial capital, most of which used their own funds while others attracted social capital. They have carried out deep investment in the industry chain or ecological investment in core businesses.
In his view, CVC is an investment tool for industry groups to achieve win-win. On one hand, the Group invests a small number of funds in upstream and downstream enterprises of the industry to strengthen the linkage between them, and on the other hand, risk of investment loss on a single project can be reduced as the portfolio of assets is formed by investing as the funds. Besides, natural advantages of industry companies have in the industrial chain ensure a higher chance of investment success.
"CVC is not merely a tool for subsidiaries of the Group to make profits, but a booster for the Group to create new strategic values." According to Carl Qin, many companies keep exploring new businesses and technologies, but they may know little about a new business field and have no reserve of talents for it. If they can obtain mature technologies and products in the market, excellent teams and talents, they can shorten the R&D period of technologies and products, decrease the input on them, and cut the cost of trial and error for the companies. It's a great way to promote innovation and integrate new resources by investment, especially conducive to the transformation and upgrade of traditional industries.
For most CVCs, it's a major goal for investors to find projects possessing industrial synergy with their main businesses. In the past, many CVCs invested in companies in developing and developed stage, whose projects boasted mature technologies and products that could be applied soon. But now more CVCs begin to lay out early investment and even angel investing. CR Capital Management joined hands with Shenzhen Angel FOF Management to set up a fund for the transformation of technological achievements in December 2020, by which it promotes excellent technological projects in Shenzhen and steps up the growth of projects with the industrial resources of CR Group.
Carl Qin said that there were two reasons for CVC to step into the early investment. First, they seek more advanced technologies through early investment to broaden the vision of industry companies, like the technologies in the next five to ten years. "Advanced technologies show us the trend of technology development, providing a reference for the Group when making strategy deployment." Second, early investment brings about high risks, but the earnings yield is relatively high, especially when new shares have frequently broken in the secondary market, investing in late projects is more uncertain than ever in terms of returns and PE is also increasingly difficult to carry out.
"For CR Capital Management, early investment is part of the fund and a supplement to the portfolio. However, many funds are as mature as European and American funds. Funds with longer periods assist companies with growth and achieve great yields when going out of business." Carl Qin said.
Four Principles of Refined Investment
According to data from CR Capital Management, it has launched 36 funds, over 100 investment projects, and over 40 billion RMB of new investments during the 13th Five-Year Plan.
For the venture capital investment in the primary market, CR Capital Management sets foot in various fields and tracks within different phrases. How does it conduct refined investment and management? Carl Qin told us four principles for selecting projects.
First, the project must have potential for growth, achieving industry-finance synergy to help companies reduce risks of failure and promote industrial innovation. Second, at least one series of financing focuses on the companies of Series E funding who have the large scale and high competitiveness to integrate with CR industries. Third, companies have a clear sense and feasible profit-making model concerning application scenarios of products. With the support of CR industries, they can grow faster. Fourth, some high-tech enterprises meet the standards of CR Capital Management as they possess advanced technologies, excellent R&D talents, and some orders despite their young age. Industrial capital is commonly regarded as “grabbing projects by orders” to put pressure on VC in the market. Car Qin thinks that CVC has advantages in seeking great projects and bargaining power to assess values. However, cooperation is still the priority in making the investment. “Cooperation matters more than competition in terms of investment. Except for mergers and acquisitions, people tend to cooperate to invest in a project.” According to him, every institution judges a project with its strengths and professional thinking when making the investment. After becoming the shareholder of an enterprise, the enterprise has more resources to improve management and services, thus facilitating its growth.
For the investment in the next five years, CR Capital Management sets out the “3+2” plan, in which “3” stands for new materials, new consumption, and new business models and “2” for peak carbon emission and carbon neutralization (two carbon related targets), and innovation and profiting. CR Capital Management has made breakthroughs in new materials and peak carbon emission and carbon neutralization targets. The investment platform CR & CNIC INVESTMENT managed by CR Capital Management took a stake in Newlink Group, an IoT company in the energy industry in January this year. It means that CR Capital Management has expanded its layout in consumer technology, energy technology, and dual carbon, and successfully entered the huge market of the digital intelligent energy ecosystem. CR Capital Management became a shareholder of JL MAG, the world's leading enterprise of the high-performance permanent magnet materials. It enables CR Capital Management to conduct businesses on core applied materials in the field of new materials and energy conservation and environmental protection, expanding the layout of core strategies of new energy and peak carbon emission and carbon neutralization targets. In addition, Carl Qin disclosed that CR Capital Management will seize the opportunity of a market downturn and increase the M&A investment.
By Zhuo Yong from Securities Times
