Shen Zhiqun: Take multiple measures to explore the development path of fund of funds with Chinese characteristics

Source: Venture Capital Exchange

At the "VCA FOF Vision Forum" held in Hangzhou today, Shen Zhiqun, Vice President of the China Investment Association and Chairman of the Venture Capital Committee, delivered a keynote speech on the current situation of the development of the FOF industry, and pointed out specific measures to explore the development of FOF with Chinese characteristics.

Photo courtesy of the organizer

Shen Zhiqun pointed out that venture capital is the most important capital driving force for the development and success of innovation, entrepreneurship and creation, and venture capital is the "first capital" that supports entrepreneurship, promotes innovation and helps creation. The sustained and stable development of venture capital depends on capital as the primary factor, relying on more patient capital and long-term capital that adapt to the high-risk and long-term characteristics of venture capital. At present, the CPC Central Committee has clearly proposed to encourage the development of venture capital and equity investment, laying the foundation for the top-level design of the high-quality development of the venture capital industry and pointing out the direction.

The FOF investment mainly includes various venture capital and industrial investment guidance funds set up by governments at all levels, as well as market-oriented FOF established by state-owned private enterprises (listed companies, financial departments, asset management institutions, and enterprise groups). It is reported that the FOF Research Center is about to release the 2023 FOF investment and development report, and it is expected that there are currently more than 400 FOF in two categories in the mainland, with a total scale of more than 5 trillion yuan in assets under management. Among them, government guidance funds of various levels and types account for nearly four-fifths, and the total scale of management accounts for three-quarters; market-oriented parent funds account for a very small proportion in terms of both the number and the total scale of management; and there are even fewer equity share transfer funds (S funds).

2024 is a year full of challenges and opportunities for the FOF industry. As the "source of living water" in the equity investment industry, the FOF industry has also entered a new stage of rapid development: the establishment of FOF is blooming everywhere, guiding the fund to enter the era of 100 billion, and many regions have invested heavily in the establishment of FOF, and local FOF has exploded.

In this context, the FOF industry has shown strong vitality and resilience. Many places have established large-scale comprehensive fund of funds through the optimization and integration of existing stocks or the establishment of new ones, and promoted the cultivation of large-scale, multi-level and market-oriented fund clusters. The industrialization and specialization of the FOF industry are becoming more and more obvious, and the rise of the "fund matrix" in various places has provided strong support for regional economic development.

At the same time, LP entities are further diversified, and market-oriented fund of funds, insurance funds, listed companies and other entities are becoming important participants in China's private equity investment LP field. Their participation not only enriches the source of funds for the FOF industry, but also brings more development opportunities to the industry.

"As an independent investor in the venture capital industry, the parent fund has not been developing in the mainland for a long time, but it has developed rapidly, and while playing a unique and positive role, many problems have gradually emerged. Therefore, it is necessary to actively explore a path of investment and development of the parent fund with Chinese characteristics on the basis of conscientiously summarizing the practical experience of FOF investment. Shen Zhiqun said.

On the road of investment and development of the fund of funds with Chinese characteristics, Shen Zhiqun summarized the contents of eight aspects:

First of all, it is necessary to give full play to the three unique functions of the parent fund, one is the function of agglomeration of social funds and private capital, the second is the guiding function of investment focus and investment stage, and the third is the function of selecting the best of the sub-fund.

Second, it is necessary to correctly understand the target function and operation mode of the government guidance fund, adhere to the government's guidance but not the leading, adhere to the enterprise operation, market-oriented direction, and properly handle the relationship between the realization of the government's investment objectives and the objective law of venture capital.

Third, while stabilizing the fund of funds set up by state-owned enterprises and institutions, it is necessary to do everything possible to expand the scale of investment in market-oriented fund of funds promoted by private enterprises and institutions.

Fourth, we must emancipate our minds and open up new ideas, encourage financial institutions with strong financial strength to support more direct financing and equity investment, and form an investment mode and structure with parent fund investment as the mainstay and direct investment as a supplement.

Fifth, it is necessary to pay close attention to the efficiency of the investment of the parent fund, strengthen the management of the parent fund over the sub-fund, and effectively protect the rights and interests of the investors of the parent fund.

Sixth, we must strictly follow the principle of meritocracy and fairness, not only pay attention to a small number of large fund management institutions, but also pay attention to "small and specialized, small and refined" professional fund institutions, and attach importance to the development of S funds.

Seventh, it is necessary to solve the problem of excessive accountability for the inspection and assessment of the parent fund management team of the government and state-owned enterprises, and implement the incentive and fault-tolerant (exemption) mechanism in line with the characteristics of the venture capital industry.

Eighth, we must pay close attention to formulating and promulgating a series of policies and measures to encourage the development of the parent fund, including the fund-raising policy, tax policy, exit policy, supervision and assessment system arrangements of the parent fund.

Editor-in-charge: Ye Shuyun

Proofreading: Zhu Tianting

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