My 1999

Over the years since its establishment, Hanhua Capital's business has expanded from simple VC to incubators, VC, PE, private equity, hedge funds and real estate investment trusts, as well as the new field of mezzanine funds that it entered only last year.

Mezzanine funds are also known as MBO funds and are mainly used in "management buyouts".

Generally speaking, the payment method for management buyouts is all-cash acquisitions rather than stock swaps, so acquisition financing is crucial.

In a typical MBO financing structure, the sources of funds include three parts:

1. 10% of the purchase price is provided by the management team, which forms the equity capital of the reorganized company after the acquisition is completed.

2. 50-60% of the purchase price is provided by bank loans. This part of the funds forms senior debt, which is secured by the company's assets and is generally a syndicated loan composed of multiple banks.

3. 30-40% of the purchase funds are provided by mezzanine funds.

The essence of a mezzanine fund is a type of loan. The way it provides and recovers funds is consistent with ordinary loans, but it ranks after bank loans in the order of corporate debt repayment.

Therefore, in M\u0026A financing, secured financing methods such as bank loans are senior debts, while mezzanine funds are subordinated debts.

Junk bonds, which are very famous in leveraged buyout financing, are also a way to provide subordinated debt funds, and have the same function as mezzanine funds.

After deducting the company's share, customer share and taxes, the net profit was US$17.16 billion, an increase of 68% year-on-year.

Finally, there are the four major independent funds under Hanhua.

Phoenix Fund, Pacific Fund, Qinglong Fund and Jupiter Fund.

Phoenix Fund was established in 2007 and raised US$20 billion. It mainly invests in the equity of unlisted companies.

Pacific Fund and Qinglong Fund are Hanhua’s signature funds.

The former is the world's largest hedge fund, managing $110 billion.

In 2007, investment gains amounted to $67.4 billion, with shadow funds making more than half of the profit.

For example, the Paulson Fund was pushed to the top of the global hedge fund profit ranking by Alpha magazine this time.

30% of the capital used to build its positions came from Hanhua, and this amount of money alone increased Pacific Fund's revenue by nearly US$10 billion.

Another example is the Thiel Fund, whose hedge fund division is completely controlled by Hanhua, and its investment returns are even higher than those of the Paulson Fund.

There are many similar examples.

Xu Liang has been planning for many years, and Hanhua has hundreds of shadow funds under its umbrella. Apart from Hanhua itself, the outside world has no idea of ​​Hanhua's huge capital structure.

According to Hanhua’s rules, if the annual investment return rate exceeds 50%, Hanhua can obtain 30% of the total profit.

Adding the 2% management fee, US$21.568 billion out of the US$67.4 billion belongs to Hanhua, of course this is before tax.

After deducting taxes, the final net profit would be around $12.7 billion.

Compared with Pacific Fund, Qinglong Fund is larger in scale, managing a huge amount of funds of US$160 billion last year.

It has 11 sub-funds, and its investment areas cover almost all fields including the Internet, high technology, energy, etc.

Because of leverage, Qinglong Fund controlled more than US$500 billion in assets at its peak.

It took Hanhua nearly a year to completely close its positions.

Qinglong Fund gained US$53.15 billion, with an average annual return rate of 33.21%.

Hanhua's pre-tax net profit was 22%, or US$11.693 billion, and its after-tax net profit was approximately US$7 billion.

Let’s not talk about Phoenix Fund.

Jupiter Fund is the real foundation of Hanhua.

This department, which is externally known as the 'Jupiter Fund', is actually Hanhua's proprietary trading department.

Hanhua's proprietary trading department basically uses its own profitable funds for investment.

At the beginning, it included equity, precious metals, real estate, jewelry raw materials, high-end wines, bonds, etc.

But later, as the company became larger and larger, in order to facilitate management, in addition to precious metals, industrial lithium carbonate and rare earths and artworks were sold to Hongyan.

Most of the rest were sold.

Only equity, bonds and cash remain.

By the time Hanhua released its interim report in June 2005, its assets had swelled to US$93.85 billion, cash and short-term bonds to US$32.85 billion, and total liabilities to US$18.18 billion.

Net worth: US$74.67 billion.

Later, Xu Liang made money from his competition with Soros in the gold market; and in 2006, he made money from CDO bonds in cooperation with the Montes family, Goldman Sachs and Morgan Stanley.

The combined pre-tax profits of the two companies exceeded 100 billion US dollars, of which more than 60 billion US dollars earned from the US market were used to establish the Xu Family Charity Fund "Group".

Why 'group'?

In order to avoid attracting too much attention by donating all the money at once, Xu Liang established more than 20 charitable funds in the name of his relatives.

Even those who know him well think that he is very generous to his relatives, and that if one person succeeds, the whole family will benefit.

In fact, these charitable funds are basically under his control. His relatives receive hundreds of thousands of dollars in actual benefits each year and do not mind paying a little nominal fee.

In addition to the donated portion, after paying taxes, there is still about 24 billion US dollars left.

In addition, there is the net income of Hanhua Capital, Qinglong Fund, Hanhua Securities and other departments, as well as the post-investment returns of Jupiter Fund's original capital.

Hanhua Capital's current net assets are close to US$200 billion.

More than 90% is in cash.

In terms of equity assets, only 30% of the equity of shadow funds such as Xu Xin's "Today Capital", Duan Yongping's "H\u0026H Investment", Zhang Lei's "Hillhouse Capital", and Ma Ziming's "Snow Lake Capital" remains.

In 2007, Hanhua's total revenue was US$165.7 billion [excluding proprietary departments] and its pre-tax net income was US$67.8 billion.

After all the US$32.1 billion that Hanhua earned from the US market in 2007 was donated to the "Xu Family Charity Foundation" as planned.

The remaining $35.7 billion in pre-tax income is subject to different capital gains taxes in different countries, and after deducting the company's internal employee share, the money that actually falls into Hanhua's hands is about $24 billion, making it the world's most profitable company.

However, since Hanhua is not a listed company, it does not need to disclose its financial situation to the public.

Therefore, the outside world does not know Hanhua’s true financial situation.

Otherwise, it would definitely be among the top in the Fortune Global 500 list.

Although Hanhua is highly profitable, the fundraising scale of Qinglong Fund and Pacific Fund has declined.

The reason is very simple.

Subprime crisis.

Due to lack of channels, ordinary people can only get some information from the news that they hear from the crowd.

But the powerful and wealthy are different. They have extensive connections and amazing power. They can get more accurate information and make more accurate judgments about current situations.

Therefore, they took the initiative to reduce the scale of investment, even directly reducing it by half.

In this way, even if Hanhua continues to make huge profits from its future investments, they will still be able to make a share.

If Hanhua Investment suffered losses, they at least kept their principal and even made some money.

You won't lose anyway.

This has also caused Hanhua's asset management scale to drop from US$437 billion at its peak in 2007 to US$279 billion now, only 60% of the original amount.

The general environment is like this, and Xu Liang can't change it.

However, once the situation stabilizes, Hanhua's excellent example of overcoming the economic crisis and making profits against the trend will surely attract more funds.

At the end of the document is a construction plan for "Hanhua Asset Management Company".

This was part of the larger plan to build the "Hanhua Financial Holding Group" that he had discussed with Jiang Xiaoyang.

After the establishment of this company, it will take over all of Hanhua’s current wealth management and asset management businesses.

The product matrix includes money funds, bond funds, hybrid funds, stock funds, real estate trust funds, etc.

The ultimate goal is that Hanhua Asset Management will be responsible for all public fund investments, as well as financial planning for high-net-worth clients and large LPs [such as pension funds and companies with investment businesses].

Hanhua Capital will be responsible for all private equity investments under Hanhua Financial Holding Group.

Including venture capital, private equity, private securities, mezzanine funds, hedge funds, etc.

Hanhua Asset Management and Hanhua Capital can allocate each other's funds, and the distinction is not absolutely clear.

After the reform is completed, Hanhua Financial Holding Group will have six major business matrices including securities, banking, insurance, private equity, public offering, and trust, plus Snowball.com, Jupiter Fund [own asset investment], Qinglong Fund [private equity], Phoenix Fund [S fund], and Pacific Fund [hedge fund], totaling 11 major subsidiaries.

Once this plan is completed, Hanhua will become a comprehensive global financial giant comparable to Citigroup and JP Morgan.

It will also become the financial core of the Xu Group, which currently has assets exceeding one trillion US dollars!

Thinking about the future, Xu Liang couldn't help but feel excited.

——

In the small house in Omaha, the two old men, Buffett and Charlie Munger, finished playing table tennis, took the towel handed over by Li Lu and wiped the sweat from their foreheads.

"Li, you missed the opportunity to short subprime mortgages last year. Now that you see others making billions or even over 10 billion dollars, do you feel regretful?"

Old man Ba ​​asked with a smile.

Li Lu shook his head calmly.

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“Mr. Munger once told me that although shorting subprime mortgages can make a lot of money, it is the government and taxpayers who will pay for it in the end.

This is unethical. Even if you can make money at the time, you will lose it in the same way later, or even lose all your funds completely.

So I gave up shorting.”

Li Lu shrugged. "So, there's nothing to regret. There are still plenty of investment opportunities in the market."

Charlie Munger smiled and became more and more satisfied with his Chinese disciple.

Buffett nodded with approval in his eyes.

“Value investing allows for countless failures, but speculation…if you fail once, you will die without a burial place.

Making quick money can paralyze a person's investment judgment and can easily become addictive."

Li Lu smiled at the side, but who could understand the bitterness in his heart?

Go speculate! I had clearly determined the investment direction and was about to enter the market to make money, but these two damn old guys dissuaded me...

Of course, it was also his own fault that he was not firm enough.

But when I see others making a lot of money, I’m so envious!

"Are you in touch with Jin Caesar?" Old Man Ba ​​changed the subject.

After a moment of hesitation, Li Lu shook his head.

"We have almost no contact. Now he and I are not on the same level."

Buffett laughed, walked over and patted Li Lu on the shoulder, and encouraged him with a smile:

"Don't be discouraged. I am more optimistic about your future development."

Then he sighed, looking regretful.

"Jin Caesar was a great man who founded the respected global technology giant 'Hongmeng' and made outstanding contributions to the development of the global Internet.

Unfortunately, he now seems to have acquired Wall Street’s bad habits.”

Buffett didn't say anything else. He believed that Li Lu should have understood what he meant.

Li Lu did understand what he heard, and a line of poetry popped up in his mind: Watch him build a tall building, watch him entertain guests, watch his building collapse...

But he himself knew that the chance was too small.

Ever since 2002, when Hanhua shorted the global energy giant Enron and entered the global capital market, no one has been optimistic about this young man emerging from China.

As a result, despite everyone being pessimistic, Hanhua made billions of dollars.

Just when everyone thought he was lucky and that a blind cat had caught a dead mouse, Hanhua bet on the Afghanistan war.

In 2003, the United States declared war, war stocks soared, and Hanhua made a fortune again.

Amid everyone's envious gazes, Hanhua rushed into the global futures market without stopping, and used almost half of its profits to go long on soybeans.

At that time, no one was optimistic about him.

Because the equity market and the futures market are completely different.

Soybean futures are the plaything of the four giants.

Any institution that wants to make a profit here has to look at the faces of the four giants.

Just when everyone was waiting for the four giants to teach this greedy guy a profound lesson, the four giants actually stood together with Hanhua and pushed up global soybean prices.

It can be said that all the glasses were shattered.

This time, Hanhua made tens of billions of dollars.

This has completely established Hanhua’s position as a global private equity giant.

In 2005, the gold war that attracted worldwide attention was considered the foundational battle for Hanhua to ascend to the throne of hedge funds.

"Lao Wang" Quantum Fund and Soros suffered a complete defeat, their glory was gone, and their prestige was destroyed.

Hanhua Pacific Fund has become the world's recognized number one hedge fund and the undisputed king in the global hedge field!

At this point, no one questioned Jin Caesar's investment talent anymore.

He is also completely regarded as the financial king of the new century!

"It's time, it's fate!"

Li Lu couldn't help but sigh inwardly.

He is confident that his financial talent is not inferior to anyone else, even Buffett and Charlie Munger. He only lacks experience and connections.

If I were not Chinese, but a pure white person.

Then your achievements will definitely not be worse than theirs.

but.

In front of Xu Liang, he really didn't dare to say that he was as good as the other.

He witnessed the golden war in 2005 with his own eyes.

Xu Liang alone defeated the Western capital group that Soros was entangled with!

This result can be called the 'Korean War in the financial world'.

…

The three of them came to the living room of Buffett's house, and while chatting, Li Lu mentioned a recent market news.

"Goldman Sachs and Morgan Stanley have recently released a lot of information that there is a powerful buyer who wants to buy a large number of put options of the five major investment banks and the five major banks, as well as AIG."

Buffett narrowed his eyes slightly. Li Lu's words reminded him of his classic operation on Coca-Cola.

"If I'm not mistaken, it should be those big short sellers who made a lot of money last year who are pessimistic about the market outlook and want to short financial stocks in this way."

Munger agrees with his old friend's judgment: "Those greedy guys are afraid that a serious financial crisis will not break out in the United States."

Li Lu's eyes flashed: "Teachers, do you think there will be a financial crisis in the United States?"

Old Man Ba ​​glanced at him and said calmly, "It is very likely to break out, but it is difficult to draw a conclusion about the scale of the crisis."

The Federal Reserve is now doing its best to rescue the market, and the situation has not yet deteriorated to the point where it is difficult to save.

"I have analyzed the put option you mentioned these days and think I can sell some of it."

Buffett was full of confidence in his words: "Banks and investment banks are both good investment targets. Even if the stock price falls for a while, it will rise again soon."

Li Lu listened carefully. Old man Ba ​​was not only an expert in stocks, but also good at options trading.

Berkshire Hathaway often uses options to perform some sophisticated operations and obtains a large amount of premium, also known as option fees, by selling options.

You may face huge losses in the early stage, but after the stock price rebounds, you will gain the stock price rebound benefits as well as the option fees and investment income brought by the option fees, killing three birds with one stone.

“If you are interested in options, you can also try it.”

Old Man Ba ​​looked at Li Lu with a smile. Seeing that the other party was well-behaved and sensible, he didn't mind taking him out for some play.

The old man wanted to take him to play, so Li Lu naturally agreed.

Although he was afraid of falling into a trap, he still had to agree verbally.

"Great! It's a good opportunity for me to learn a thing or two from you."

"Hahaha!"

Buffett smiled happily, "Okay, next I will show you my investment philosophy."