After the introduction of the strictest regulatory policy, K12 extracurricular tutoring has ushered in a huge earthquake for bishop training institutions. On the US stock market, TAL Education Group, New Oriental Education & Technology Group, Gaotu Techedu Inc. and other star education stocks collapsed across the board. However, on the 27th, American general education stocks rose across the board, with TAL Education Group up more than 25%, New Oriental Education & Technology Group nearly 13% and Gaotu Techedu Inc. up more than 15%. On the 28th, Hong Kong education stocks rebounded sharply.

It is worth noting that under the sharp fall in the market, many people found that Hillhouse cleared TAL Education Group and education stocks in the first quarter of this year, believing that the precise clearance of Hillhouse got the news in advance. Others pointed out that Hillhouse founder Zhang Lei talked about "education is an investment that never needs to be withdrawn" on the CCTV "meet Big Bigs" program in 2018, which was ridiculed as Hillhouse's "discrepancy between words and deeds." Did the Hillhouse clearance Education Unit really get the news? Is the share price collapse of K12 educational institutions doomed? How to avoid similar investment risks in the future? This series of problems have attracted much attention.

Some people pour in crazily, while others warn of the risks early, even at the hottest moment of online education in the past two years. A professional investor who has followed K12 shares for a long time detailed his deep thinking about the online education industry to Chinese brokerage reporters, saying bluntly that online education is actually a "ghost story" and is worthy of market vigilance.

In addition, with the collapse of star education stocks such as TAL Education Group and New Oriental Education & Technology Group, many investors can't help but want to copy the bottom. Liang Hong, chairman of 10 billion private equity Shiwa assets, said in a post on July 28, "I was surprised to find that I had a position of more than 100 million US dollars before, but it only cost millions of US dollars to buy it back these two days." Many investors speculate that Liang Hong may have copied the bottom of the education stock.

Hillhouse's clearing education stock in the first quarter caused controversy.

As the best-known private equity fund in China, Hillhouse's investment actions have always attracted the attention of the market, especially its public positions in US stocks.

After the introduction of the strictest regulatory policy, K12 extracurricular tutoring has ushered in a huge earthquake for bishop training institutions. However, many people found that Hillhouse cleared TAL Education Group and the education unit together in the first quarter of this year, believing that Hillhouse had received the news in advance, and some even ridiculed that Hillhouse was a "friend of the leader."

In fact, regulatory policies have become stricter, and the education and training industry is facing a test. As early as the first half of the year, regulatory policies and governance actions have been implemented.

According to the Soochow Securities Research Institute, in January 2021, the Central Commission for discipline Inspection criticized online education: during the "two sessions" in early March, compulsory education extracurricular training institutions also attracted widespread attention, with a large number of online training platforms "savage growth". In view of the social phenomenon of internal anxiety, it is suggested that the advertising of extracurricular training institutions should be strengthened to avoid causing parents' anxiety. The leaders also pointed out that education cannot be based on fraction theory, and commented on the problem of educational chaos; the "double reduction" document was deliberated and passed on 21 May, strengthening the standardized management of online and offline K12 training institutions; in mid-June, leaders will talk about K12 education and training again; and on 24 July, the "double reduction opinion" was officially issued.

According to public data, Hillhouse began to invest in TAL Education Group in 2014 for as long as 8 years, and the Hillhouse secondary market team gradually reduced its stake in TAL Education Group as early as 2019. As education stocks that rose to high levels in the first quarter generally began to withdraw sharply, for example, TAL Education Group fell 24.7% in the first quarter, New Oriental Education & Technology Group fell 24.65%, and Gaotu Techedu Inc. fell 34.48%. In order to control portfolio risk, many investment institutions have chosen to reduce their holdings or even liquidate their positions.

According to public information, Hillhouse cleared TAL Education Group and 17 Education & Technology Group in the first quarter of this year; Jinglin assets sold 77.61% of TAL Education Group's shares; UBS sold 87.4 million Gaotu Techedu Inc. shares; and Tiger Global Fund cleared Gaotu Techedu Inc. in the first quarter. According to the second-quarter data of public offering funds, QDII funds have also liquidated their positions in education stocks.

The investment profile of TAL Education Group by Baillie Gifford (BG Fund), a well-known investment institution, shows that when buying TAL Education Group, BG Fund is optimistic about the potential that the college entrance examination gives to China's K12 industry. According to the data of BG Fund Quarterly position report (13F) disclosed on the US SEC website, BG Fund cleared its position in Q3 in 2018 and held New Oriental Education & Technology Group Education for more than ten years. In 2020, Q1 began to reduce its position continuously, TAL Education Group. The BG fund did not explain why it began to reduce its holdings of TAL Education Group in recent years. But as can be seen from the archives, BG was worried from the beginning about the restrictions on returns that regulation might bring.

In addition, many people pointed out that Hillhouse founder Zhang Lei said on the CCTV "meet Big Bigs" program in 2018 that "education is an investment that never needs to be withdrawn", which was also ridiculed by netizens as Hillhouse's "discrepancy between words and deeds." But in fact, the host and Zhang Lei were talking about the segment donated by West Lake University. Zhang Lei said that "do not quit" means that there is no need to withdraw from investing money in public welfare education such as West Lake University. This is two concepts with the secondary market investment and training stocks. It is not simply the meaning of never buying stocks. It is obviously taken out of context.

"conspiracy theories always understand the laziest and least nutritious way in the world. If these investment institutions do not escape the risk, but step on the mine and be trapped, individual voices may laugh at these big-name institutions again, but so much. "some institutional personages said.

Returning to major, in the secondary market, investment institutions generally use combined investment, which can effectively reduce investment risk. An investment portfolio is determined by the composition of securities and their weights. The selection of unrelated securities should be the goal of building a portfolio, and risk should be the focus of the whole investment process.

According to the above-mentioned institutional personage, there are roughly three situations in which institutions consider reducing their holdings of stocks in portfolio investment:

First, the fundamentals of companies and stocks have deteriorated and failed to meet the earnings requirements after re-evaluation.

Second, the stock price has reached the target price, and the valuation risk appears.

The third situation is to find better investment targets and need to sell stocks to free up positions and adjust new strategies for fund portfolios.

While Hillhouse's precise reduction may be controversial, rather than speculating about whether Hillhouse got the news, investors should reflect on whether there is something wrong with their understanding of its business model during the pursuit of education stocks. Whether K12 educational institutions turned a blind eye to high valuations and related issues during the soaring share price of K12.

There are many problems behind online education.

2020 is the year of the rapid development of online education, which is regarded as the best track in the field of education, attracting a large amount of money. Star education stocks such as TAL Education Group, New Oriental Education & Technology Group and Gaotu Techedu Inc. soared across the board. The expectation of online education after the epidemic in 2020, instigated by the collective mood, the whole K12 has been in a state of very high valuation.

Wang Yiping, founder of 10 billion private evolutionary assets, said that there were all kinds of voices about the problems of education stocks at the end of May this year, and various policies were introduced in June. Both macro arguments and micro specific policies are well documented. Foreign-funded institutions accuse Chinese education stocks of great policy uncertainty, in fact, they do not follow up in time, and if they lose money, they should find out why they invest more.

Zhang Huaqiao, chairman of Hong Kong slow Niu Investment Co., Ltd., also said that the problem of online education in China is obvious. Do investors really not know? First, students are tired, parents are overwhelmed and schools are hit. Second, there is no moat in this industry, and the business model is broken from beginning to end. They are not nearly as good as restaurants, which I wrote last November. Third, valuations are ridiculous. Even after the slump, it's still expensive.

C4Cire, a professional investor who has been tracking K12 shares for a long time, told brokerage Chinese reporters that in June, after a round of sharp falls in the K12 sector, he successfully dissuaded a friend who tried to buy K12 shares at the bottom.

The reason given by C4Cire is that there are two "ghost stories" that have not been told clearly throughout the K12 sector, one is that the valuation is too high, and the other is that the direction of online education (especially the online big class) may itself be wrong-if you don't think clearly about these two questions, you may be "damned" as soon as you get to the bottom.

One striking phenomenon is that even after the June crash, the valuation of the entire K12 stock is still very high. As of June 23, for example, Gaotu Techedu Inc. Education has fallen 90% from its peak, with 5PB; Sikao Education, down 86% from its peak, and 3PB; TAL Education Group, down 74%, and 2.94PMB-it's hard to imagine how previous investors put up with such high valuations.

At this level of valuation, it means that investors have been too obsessed with the "track" and have very high expectations for future growth.

C4Cire said, "at the valuation level on June 23, even if TAL Education Group returns to the historical average profit level, the corresponding estimated PE will reach 40 times." This means that this valuation level requires higher performance growth, not only a return to normal profits, but also higher performance growth. Under such valuation and growth requirements, it is difficult to say how high the success rate is. "

On the other hand, the business model of online education has always been controversial. Whether this model is established and whether the quality of teaching is guaranteed has not been decided. The entire online education plate, in addition to Gaotu Techedu Inc. once announced profits (and later losses), everyone is still groping, the experimental stage.

But the trouble is that, after the impact of the epidemic and capital speculation in 2020, the online education sector is regarded as the most promising business, and the valuation of the online education business is rapidly rising, and the capital is pouring in and out. Investors have collectively forgotten: this is a new business type that has not yet been proven in practice-especially the online Taipan model.

C4Cire said, "Education is a very complex collective human activity, and there are too many factors that affect students' performance." The teaching level of a teacher is only one of the factors, and other factors, such as class atmosphere, interpersonal relationship, teacher-student relationship, and so on, will affect students' test scores. It is not possible to find a first-class teacher to give lectures across the screen. "

"from observing the process of online classes, we know that online courses are very difficult to manage the attention of primary and secondary school students. Even if parents are around, children are still distracted-human learning actually needs a lot of environment and atmosphere. It also needs a living 'person' to act as a teacher, not a screen teacher who has nothing to care about him and can't see his joys and sorrows. "C4Cire pointed out.

In addition, C4Cire also said, "New Oriental Education & Technology Group once practiced the large class model of K12 offline, and practice proved that it was impossible to manage students' attention at all, so they had to switch to small class mode." If offline K12 Taipan mode is a failure, why can it be successful online? Shouldn't it be harder to manage? It doesn't make sense. "

Therefore, the problem of online courses lies in classroom quality control. Due to the loss of the emotional connection between teachers and students, the atmosphere between classmates, and the natural inability of primary and secondary school students to control their self-attention, online K12 education is difficult to make the quality of offline small classes, which in turn reduces the continuation rate of classes.

In the end, C4Cire spent two years tracking K12 stocks, but did not build positions, always had doubts about K12 shares, and still had doubts about the entire K12 business model. "maybe we spent a lot of time and studied it more deeply, but this topic may be too difficult for us, so we still choose to give up. "

Tens of billions of private equity bottom-reading education stocks? You need to be careful with the bottom, don't add leverage.

It is worth noting that with the collapse of star education stocks such as TAL Education Group, New Oriental Education & Technology Group and Gaotu Techedu Inc., many investors can't help but want to copy the bottom recently.

Liang Hong, chairman of 10 billion private equity Shiwa assets, said in a post on July 28, "I was surprised to find that I had a position of more than 100 million US dollars before, but it only cost millions of US dollars to buy it back these two days." Many investors speculate that Liang Hong may have copied the bottom of education stocks, such as New Oriental Education & Technology Group or TAL Education Group.

Wang Yiping also said, "things have their basic principles. On the one hand, they are affected by policies, and they should also consider the value of stocks." During the day yesterday, it was said that the fund manager of the education stock had a window effect, and the education stock rebounded last night. Almost in the case of all kinds of media and many people singing short. When you are under a lot of stress, I suggest giving fund managers an environment for calm thinking. "

However, a head of private equity in Shenzhen said that if there is no deep understanding of intrinsic value, any bottoming action is dangerous. "the business logic of K12 has been negated by regulation, which has invalidated many valuation methods, and investors can only go back to Graham-style analysis, to the study of the balance sheet, and to conservatively assess the value of each asset and potential solvency obligations. "

As for many investors, some education stocks have fallen below the cash value. The head of the private equity said that a large part of the cash in online education institutions comes from students' advance payments, which will all be returned to students if the business stops, as well as a large team of teachers and sales teams to be laid off. There are also various teaching centers signed long-term lease contracts to be invalidated, may have to pay reparations, but whether it belongs to force majeure needs to be discussed.

"in short, you can't just look at the decline and rush in. Whether it is worth making a bottom, investors need to make a careful and relatively conservative assessment of the company's assets, and do not add leverage even if it is clearly worth taking action. The above-mentioned person said.