The phenomenon of halving the net value of private equity has attracted much attention from the market recently. According to the data of the private placement network, there have been a huge drawdown in the net value of hundreds of private placements this year, and the worst products have even lost more than 90%. This phenomenon has led to a discussion about whether a "double line" (warning line and stop loss line) should be set.
As for whether to set up a "double line", industry insiders have different opinions. Some people believe that such a setting can urge private equity managers to pay more attention to absolute returns and avoid the harm of "zombies" to the interests of investors, so it is very necessary in product design. However, there are also those who disagree. They believe that if the "double line" is set up, private equity managers are usually unable to sell in the process of market adjustmentIf it falls below the stop loss line, the product may be forced to liquidate, which will not only slow down the recovery of the net value of the product, but also affect the holding experience of investors. In the long run, the "double line" is not conducive to investors to obtain absolute returns. In addition, the concentrated position reduction action is likely to lead to further market **, resulting in a phased negative feedback.
In my opinion, the "double line" setting is a double-edged sword, and it is necessary to consider the risk appetite of investors, the investment style of private equity managers, and market conditions to decide whether to set and the level of early warning and stop loss lines. Investors also need to fully understand the product risk and the long-term performance of the manager before making a demand.
The phenomenon of halving the net value of private equity is more of a wake-up call for risk control before private equity managers. Many private equity managers are betting on a small number of targets or aggressive with leverage in their pursuit of high yields, which means they ignore the importance of risk management when building portfolios, leaving the payback elusive. In the future, private equity managers will need to pay more attention to ex-ante risk control and respond to market uncertainty through appropriate asset, sector and style diversification.
In addition, strengthening the level of investment research is also one of the important aspects of pre-event risk control. In recent years, the complexity of the macro environment, the rapid development of science and technology, and the changes in the structure of market participants have put forward higher requirements for the investment and research capabilities of private equity. Private equity needs to further strengthen its investment and research capabilities and keep up with the pace of the times in order to create absolute returns for investors.
In general, the phenomenon of halving the net value of private equity has triggered a discussion about the "double line" setting. When deciding whether to set and the level to set, it is necessary to comprehensively consider the risk appetite of investors, the investment style of managers and market conditions. Private equity managers also need to strengthen their ex-ante risk control and investment research capabilities to improve investors' returns and risk control capabilities.