In recent years, S funds have entered a period of vigorous development and play a key role in the exit of PE equity funds. Especially since 2023-2024, the S market has brought a wealth of experience and deep insights to investors and participants, and the industry has experienced changes in the S market and investors' positive response to innovative market opportunities.
S funds occupy an important position in equity investment
At present, the mainland PE equity market has a steady stream of funds flowing into the market every year. The amount of funds flowing into the market far exceeds the amount of funds flowing out, and the scale of existence is huge, of which more than half of the assets are in the exit period, and the difficulty of exit is a difficult problem faced by PE equity fund managers. The amount of funds that can be digested by the IPO is limited for the exit market, and it will be inevitable that the S market and the M&A market will digest a large amount of exit funds.
The S market occupies an important position in the entire equity investment ecosystem, and S trading is a key tool to solve the current exit problem of funds. Judging from the actual development of domestic equity investment funds, it is difficult to achieve exit through project listing, so it is necessary to increase the exploration and practice of exit in the process of fund operation. Fund S is an optional option, which provides a good opportunity for the fund to achieve exit in operation, and plays an important role in recovering funds and speeding up turnover for state-owned investors.
In addition, LPs can achieve exit through S transactions and mergers and acquisitions, which is also a very healthy and effective means to alleviate the current liquidity. The S market is hot, with the policy support of regulatory agencies, and the ecological construction is also more perfect. Clearly, S deals will be a key part of solving the exit puzzle for private equity funds.
The policy continues to improve, and the S market welcomes historical opportunities
On March 5, 2024, the "Government Work Report" pointed out that the development of venture capital and equity investment should be encouraged, and the functions of industrial investment funds should be optimized. S funds, which are closely related to equity investment, and "how to smooth the exit channels of private equity investment" have also received great attention from the industry. This indicates that more measures to support the development of equity investment and venture capital may be introduced in the future, driving the steady development of the venture capital market and injecting more long-term funds into the national high-tech industry.
According to the survey of Baoli researchers, with the gradual improvement of the policy foundation, more and more attention will be paid to the supervision and compliance of the private equity secondary market in 2023-2024, and the corresponding policy benefits are frequent:
On January 24, 2024, the China Securities Regulatory Commission approved the regional equity market in Anhui Province to carry out a pilot project for equity investment and venture capital fund share transfer;
On September 26, 2023, the pilot project for the transfer of shares of equity investment and venture capital funds in Guangdong was officially launched, and on August 22, 2023, the China Securities Regulatory Commission (CSRC) officially approved the pilot project for the transfer of equity investment and venture capital shares in the regional equity market in Jiangsu.
In August 2023, the China Securities Regulatory Commission (CSRC) coordinated the balance between the primary and secondary markets, tightened the pace of IPOs in stages, and promoted the dynamic balance between investment and financing.
In July 2023, the promulgation of the Regulations on the Supervision and Administration of Private Investment Funds filled the gap in the upper-level law of the private investment fund industry, and the new problems faced by the domestic S market will be based on evidence;
In June 2023, the "Several Measures for Finance to Promote the Innovation and Development of Future Science City" proposed to build a fund of funds group for the science and technology industry and promote the pilot of comprehensive financial services.
In March 2023, the State Administration of Financial Supervision and Administration was established in accordance with the State Council's proposal on submitting for review the institutional reform plan of the State Council. It is responsible for the supervision of the financial industry other than the securities industry, strengthens institutional supervision, behavior supervision, functional supervision, penetrating supervision, and continuous supervision, coordinates and is responsible for the protection of the rights and interests of financial consumers, strengthens risk management and prevention and disposal, and investigates and punishes violations of laws and regulations in accordance with the law, as an agency directly under the State Council.
Experts interpret the trend of the S market, and Baoli takes advantage of the trend
In order to encourage the development of the S market, a number of encouraging policies have been introduced at the national and local levels to support development. On the basis of the basic conditions for market development, domestic professional S funds and independent S institutions have been established one after another. In recent years, industry experts have been optimistic about the future development of the S market and S funds.
The chairman of the Beijing Equity Exchange Center said that the exit channels of private equity funds are diversified, and relying on formal trading venues to realize the transfer and exit of private equity fund shares is an option under Chinese characteristics. The penetration rate of the secondary private equity market in mainland China still has a lot of room for development compared with the international level, and it will develop by 4-5 times in the next few years, which is the trend of market development.
According to the "Suggestions on Improving the Exit Mechanism of Government Guidance Funds during the 14th Five-Year Plan Period", the key to the smooth exit of government guidance funds lies in the diversification and smoothness of the exit channels available for projects or sub-funds. (Source: China Finance, Issue 841)
The founder of well-known capital believes that the emergence of S share fills and improves the richness and integrity of the market ecology, which is a structural opportunity, a structural category, and a structural variety, and this variety itself is a multi-directional empowerment and mutual achievement role.
In recent years, as the problem of "exit backlog" of PE equity funds has gradually become prominent, the attention of S transactions has been increasing, and local professional S institutions have been established one after another, most of which are teams spun off from parent funds or direct investment institutions, but there are also new independent S institutions, and professional buyers have begun to enter the market.
As a professional investment service institution, Baoli Investment grasps the development opportunities of the times and is participating in S funds in different forms. In the future, Baoli Investment will continue to provide professional services in the field of S funds, and continue to explore investment opportunities with great growth value in the future with professional strength.