Hou Lin: China's mother fund industry doesn’t have a long history—yet as one of the earliest domestic managers responsible for RMB-denominated mother funds, you played a key role in establishing this sector and have witnessed multiple industry cycles firsthand. Looking back over the years, what are your observations and insights into the industry’s evolution?

Xu Qing: I’d like to share my observation over the past few years regarding the development of China’s RMB equity market. The RMB equity market has experienced three waves of enthusiasm.

In 2006, Yuanhe Chukun began engaging in the private equity fund-of-funds business. At that time, the more prominent funds in the market were primarily managed by U.S. dollar-denominated teams, which typically boasted more sophisticated and comprehensive operational strategies—as well as robust back-end management practices—compared to their counterparts. Meanwhile, RMB-denominated funds were still in their early, budding stages.

In 2009, the ChiNext board was launched, marking the first wave of growth opportunities for the RMB-denominated equity market. A massive influx of capital flooded into this market, culminating in a major boom from 2009 through the first half of 2010. During that period, investors primarily adopted a pre-IPO strategy, capitalizing on the substantial growth-related returns as companies matured and expanded.

Later, the price gap between primary and secondary markets began to narrow significantly, giving rise to the concept of professional fund allocation. By 2014, a wave of VC 2.0 enthusiasm emerged. During this period, many teams labeled as "2.0"—previously part of traditional GPs—leveraged their solid investment experience and deep expertise in specific niche sectors to launch new ventures, ultimately becoming highly successful managers in the market.

In 2017, with the influx of bank capital, the RMB equity market experienced a third wave of growth. From 2017 to 2018, a genuine surge emerged across various regions in the form of RMB fund-of-funds and guiding funds—ranging from exceptionally large national-level funds to locally focused initiatives.

After the new asset management regulations were introduced, this wave of enthusiasm began to cool down—only to experience another small surge during the pandemic. Meanwhile, the launch of the STAR Market has provided a strong boost to the entire industry, particularly from the exit perspective.

So, our equity market today has undergone a dramatic transformation compared to how it was when we first entered in 2006. China’s private equity investment landscape has moved beyond its earliest stages of development and is now gradually maturing. This shift is driven by the evolving roles of participants and the changing dynamics of the market itself. I believe China’s equity investment will certainly forge a path uniquely tailored to China’s characteristics. Let’s wait and see how it unfolds in the future.

Xu Qing: I think GP has evolved quite noticeably over the years. At first, we saw that RMB funds and USD funds had completely distinct characteristics. But as the market progressed, the two teams began learning from each other, gradually blending their approaches. On one hand, The U.S. dollar fund team is becoming increasingly operational and grounded in real-world applications. On the other hand, The RMB fund team has become increasingly standardized and professional in terms of investment management, strategic evolution, and internal organizational structure. "I think this is particularly beneficial for the development of China's entire equity market."

China's private equity investment teams have faced immense challenges. Over the past two decades, the entire industry has made remarkable progress across fundraising, investment, management, and exit strategies—evolving at an incredibly rapid pace.

We’ve always joked that it’s no easy feat for GPs to invest in China—they need to not only master fundraising and investor attraction but also navigate relationships with the government, identify standout projects, craft compelling narratives, deliver exceptional post-investment support, and, most importantly, successfully exit their investments.

In addition to this, the GP also dedicates significant time and energy outside of work to studying both overarching macro policies and the specific policies within niche sectors, along with their potential long-term implications.

This is the overall situation I’ve observed with the entire China GP team.

Regarding the second question, I believe a good GP should first know exactly what they’re doing, and then, based on their own capabilities as well as the pressures of the external environment, decide how to craft an overall strategy—and establish team mechanisms and talent-development structures that support the evolution of that strategy. 。

For a GP, the most critical ability is maintaining a strong capacity for learning and adaptability. Whether you’re an early-stage dark horse—where your initial edge might lie in your ability to quickly assess projects and industries while facing numerous challenges on the backend—or a well-established white horse with robust systems and solid foundations, you’ll likely encounter significant growth pressures when it comes to strategic pivots, team restructuring, and refining your organizational and personnel frameworks.

Throughout the industry's rotation, we must effectively organize our team to respond to market changes. The most important point is that the GP must remain highly sensitive to market dynamics and maintain a strong capacity for continuous learning. "You know what adjustments need to be made to better align with the environment, and what strategies and approaches can help you deliver strong fund performance—only then will LPs trust you and continue to provide you with capital."

Overall, our core requirements for GPs are: stay curious, remain humble, and keep moving forward.

Xu Qing: The dark-horse teams we particularly recognize share the following key elements: a strong market opportunity, supportive industry investors, and team members with solid investment experience. 。

First, look at the track—are there any major opportunities emerging?

Second, we need to identify individuals within this industry who possess ample industry resources. They have a clear understanding of the sector's overall growth, product implementation, and innovation—plus, they can pinpoint exactly where users’ experiences and needs lie. People with deep industry expertise are crucial, and these should be complemented by team members who bring valuable investment experience.

When evaluating a team, we don’t place particularly high expectations on its historical performance across the board—after all, it could very well be a brand-new team. That’s why we base our assessment on the team’s methodology as well as its early, smaller-scale achievements.

Our primary focus is on his methodology: how he consistently identifies great projects, how he continuously makes informed decisions, his deep understanding of industry trends and pain points, his ability to uncover insights that others miss, and his knack for recognizing which applications truly deliver real value.

Since he lacks historical performance to back him up, we must trust that he has a very clear understanding of his overall investment logic and philosophy.

Next, we look at the team. We’ll reach out to his previous industry partners to assess the individual’s capabilities, character, and other key qualities.

We say that the Dark Horse’s offensive triangle model represents the perfect combination of "favorable timing, ideal terrain, and harmonious alignment"—in other words, the right moment, the right path, and the right people.

Hou Lin: What strategy has Yuanhe Chenchun's mother fund adopted this year for its portfolio allocation across different investment tracks? And will it make minor adjustments annually or over shorter cycles?

Xu Qing: Yes, every year we make some proportional adjustments in specific sub-sectors. For instance, at the beginning of the year, we reduced our overall allocation to the consumer sector because consumer performance has been underwhelming since September of last year. However, we’ll revisit and reassess the right timing for reallocating back into the consumer space later on.

Additionally, our allocation in the healthcare sector remains relatively high. Last year, healthcare stocks experienced a severe downturn, significantly impacting the overall market capitalization. However, looking ahead in the long term, we’ll maintain a stable allocation ratio within the healthcare space without making major adjustments. In specific sub-sectors—such as pharmaceuticals, medical devices, diagnostics, and B2B/B2C healthcare services—we’ll make minor tweaks in line with market rotations, rather than adopting a broadly balanced approach.

Overall, due to the broader national trends and evolving market conditions, we’ve been steadily increasing our investments in the entire To B segment—particularly in the hardware space—over the past two years. In earlier years, our investments were still largely driven by the underlying logic of the internet and mobile internet sectors, so our focus was primarily on soft tech, with hardware receiving a relatively smaller share of our portfolio.

Over the past two years, we’ve been steadily upgrading our hardware infrastructure. On one hand, this reflects the growing need for China’s economy to shift toward internal circulation amid U.S.-China relations. On the other hand, it also aligns with the broader national trend of fostering innovation and technological advancement. In other words, Our entire strategy today is closely tied to the country's broader macroeconomic needs and guiding principles. 。

We operate a primary-market equity investment fund in China and must maintain a strong alignment with national policies—particularly since our primary exit strategy is centered around the A-share market.

Hou Lin: For GPs, are there any risk- or investment-related considerations to keep in mind during the second half of this year? Could you offer some advice?

Xu Qing: On the financing front, I think GPs will face significant pressure in the second half of the year. Everyone is waiting to see how things unfold, and there’s also considerable pressure from FOFs in the market. So my advice to GPs is: if you can secure funding, go for it. 。

Various regions are actively establishing and promoting guidance funds, so everyone can obtain financing based on their industry capabilities and resources. Although this may bring some additional work and pressure, in today’s market, GPs have little room to be picky. If there is money to be obtained, it should be taken.

When it comes to investing, I don’t need to offer any advice—after all, all GPs are already highly skilled in this area. And when the time is right for action, everyone will step in without hesitation.

In terms of management, I think the managers have done a lot over the past two years to drive post-investment value creation—they’ve made significant progress, especially in supporting companies during later-stage financing rounds. Given the current market conditions, my advice would be to secure funding whenever possible. I’m not sure whether the broader market recovery will happen by the end of this year, next year, or even later down the line.

When it comes to exiting, I think everyone should adopt a very open mindset when considering this issue. Given today's market valuation, my personal strategy and advice are: lock in some profits by exiting a portion of your holdings at the right time, then gradually retain the rest. This is a relatively cautious approach. 。

Of course, each GP has a different situation, so my general advice is to categorize your entire portfolio as follows: one category for assets you plan to hold long-term, another for investments you’d like to monetize more quickly and efficiently, and a third for assets you’re ready to dispose of swiftly due to deteriorating conditions. In other words, it’s crucial to establish clear-cut categories, set rigorous criteria, and then stick to them with discipline.

I think principles are especially important. You have a strict discipline—you should only treat breaking the rules as an exception, never turning exceptions into the norm. So, My advice to every GP is: strict discipline and rigorous execution.

Hou Lin: Looking at the various sectors, the market has seen a "two-sided" dynamic this year—some areas have cooled down, while others remain incredibly hot. Amidst this rapidly evolving landscape, will Yuanhe Chencun adjust its strategies to keep pace with the market, or will it stick to its own steady investment rhythm?

Xu Qing: Overall, we’ll stick to our own pace. When a FOF is established, it has a clear strategy in place. Our core strategy is: to face changes in the market environment with a consistent approach. I don’t know if things will get better next year or the year after, but I’ll stick to a steady pace of deployment.

From the perspective of FOF, portfolio construction has always been my core philosophy. I aim to achieve consistent returns simply by maintaining a well-balanced allocation across various portfolios. After all, I believe the most important thing is to stick to your core strategy while delivering steady, reliable results. That’s why we avoid making major adjustments.

However, in the more niche industries, we’ll certainly make some minor adjustments. Even at a time when consumer spending isn’t performing well today, we’re still looking at consumer-focused funds—but we’ll be more cautious when it comes to investment allocation. This might mean slightly reducing our exposure in terms of percentage, amount, or even the frequency of our investments. Still, we’re maintaining our usual, steady pace of portfolio management.