Chenkun Ecology
Chenkun Ecology is a mother-fund ecosystem built by Yuanhe Chenkun, leveraging the resource network and scale advantages of its flagship fund to connect government agencies, major capital players, leading industries, fund management firms, and pioneering startups.
Yuanhe Chenkun emphasizes multi-faceted empowerment within its ecosystem, consistently providing partners with a knowledge-sharing platform, a deep-connecting hub for capital and industry players, and a vibrant networking space for entrepreneurs and investors through offline specialized events such as the "Gathering at Shahu – Autumn Forum," the "Kunpeng Hui" industry salon, and dedicated capital-matching sessions.
Xu Qing: Equity Investment and Fund-of-Funds Management in the New Environment
Release date:
2022-08-22
On July 30–31, 2022, at the 2022 China Fund of Funds 50 Forum, Ms. Qing Xu, Managing Partner of Yuanhe Chencun, delivered a speech titled "Private Equity Investment and Fund-of-Funds Management in the New Environment."
On July 30–31, 2022, the highly anticipated 2022 China Fund-of-Funds 50 Forum was successfully held in Wujiang, Suzhou. This year’s forum was organized by the Fund-of-Funds Branch of the China International Science and Technology Promotion Association, with Suzhou Wujiang Dongfang State-Owned Capital Investment & Management Co., Ltd. and the Fund-of-Funds Research Center serving as co-organizers. Over 300 representatives from government departments, industry associations, leading domestic fund-of-funds, top-tier investment firms, and media outlets gathered in Wujiang to share insights and offer valuable recommendations for the development of China’s fund-of-funds industry. During the event, Ms. Qing Xu, Managing Partner at Yuanhe Chencun, delivered a keynote speech titled "Equity Investment and Fund-of-Funds Management in the New Landscape."
Here's a summary of the conversation session:
About Yuanhe Chenkun
Yuanhe Chenkun is a fund-of-funds management team established in 2006, founded with Yuanhe Holdings and China Development Bank as cornerstone investors. Over the past 16 years, we have remained committed to developing investment management services centered around fund-of-funds strategies. To date, we manage five flagship funds with total assets under management reaching 26.4 billion yuan, leveraging an even larger pool of over 185 billion yuan in invested capital. We’ve also partnered with 80 distinct fund management teams across 155 funds, supporting more than 3,600 companies—primarily small and medium-sized enterprises as well as high-tech firms.
As one of the earliest players in the industry, our mission and vision are to lead the way, pioneering solutions that break new ground—especially in challenging environments like mountains. We aim to become a market-oriented, influential, and widely recognized flagship fund-of-funds institution. That’s why we remain firmly committed to a market-driven approach. Our mission is to identify, nurture, and support exceptional fund management teams—aligning perfectly with our strategic positioning. By investing in top-tier fund managers, we seek to fuel China’s technological innovation, ultimately driving growth across the broader real economy.
Although we were among the earliest teams, today our managed scale and overall portfolio aren’t the largest in the market. Over the past two years, large funds and major investors have surged into the space—but when it came time to raise capital, we realized there wasn’t as much money available as expected. Yet, looking at the numbers, it turns out there are actually far more funds already active in the market. This is precisely the point we’d like to share and discuss with everyone.
We’ve created China’s first truly meaningful management team community. Over the years, we’ve remained fully focused on our FOF positioning, with the core mission of building and nurturing an ecosystem of exceptional investment management teams. This is precisely the heart of what we do as a fund-of-funds provider.
Fund-of-Funds Positioning
When it comes to the positioning of a fund-of-funds in the market, this type of fund must leverage its scale advantage. Without such an edge, it would be challenging to build a robust ecosystem or foster a mutually beneficial partnership with GPs. At the same time, one of the key benefits is risk diversification—FOF achieves this by strategically allocating capital across various GPs, industries, and investment stages, ensuring a well-balanced portfolio. Another critical aspect is professional management: it’s not just about making initial investments; the real value lies in the comprehensive post-investment support, including ongoing management, tailored services, and ultimately, successfully exiting investments to deliver strong returns. This demands a high level of expertise and capability from the fund managers. Lastly, a fund-of-funds opens up unique co-investment opportunities. As we establish a thriving ecosystem and tap into favorable market conditions, we gain access to numerous attractive direct-investment prospects. Through a combination of government guidance, strategic resource allocation, and market-driven mechanisms, the fund-of-funds effectively channels capital into diverse fund types—such as seed funds, venture capital, and private equity—supporting startups, growing companies, and even mature enterprises along their respective journeys. In essence, the fund-of-funds acts as both a central control point and a vital hub within this dynamic financial flow, enabling us to provide targeted guidance and catalytic support at every critical juncture. From the perspective of the fund-of-funds, the most important and central point is to align asset allocation with the nation's industrial guidance and government priorities. 。
Next, let me share with everyone the different statuses of the underlying funds available in the market.
The diverse nature of funding determines the distinct positioning of the master fund, and each type of capital plays a decisive role in shaping the master fund’s guiding direction. Today, we can observe government funds, social security contributions, pension funds, wealth investors, industrial companies, and insurance firms entering the market. The varied origins of these funds—and their subsequent allocation to different investment vehicles—clearly influence the overall investment philosophy, strategies, and orientation of the fund ecosystem. This impact is particularly pronounced when it comes to defining the overarching ecosystem that the master fund ultimately helps to shape.
A master fund is a tool for asset management, and its specific characteristics are determined by the nature of the capital contributions. Let me give you a few simple examples. For instance, government-guided funds are also a type of master fund—but they carry stronger governmental attributes due to their funding source from public finances. From our perspective, as long as such a fund achieves overall portfolio returns through strategic allocation across multiple sub-funds, we consider it a legitimate form of master fund. Government-guided funds place particular emphasis on regional characteristics, with their core objective being investment promotion. These funds have a highly targeted approach, directly engaging with local industries and setting stringent requirements for them. Ultimately, their goal is to attract investments, draw in top-tier GPs, support key local industries, and foster the growth of prominent local enterprises—reflecting the localized, government-driven mandate behind these funds.
The core demand of industrial capital is to establish a presence across the entire industry chain, driving its need for investment, mergers and acquisitions, and access to emerging industries. As a result, it exerts influence not only on the upstream and downstream sectors of the industry but also extends to horizontally related industries that lie adjacent to the broader ecosystem.
From the perspective of a market-oriented fund-of-funds, We hope Establish a resource aggregation network by leveraging diverse configuration strategies to bring together GPs, enabling access to and connections with the latest technologies, cutting-edge production models, and other key advancements across the entire market. 。
So, the different positioning of the master fund ultimately determines the kind of ecosystem we’ll create. This ecosystem itself isn’t inherently good or bad—it simply serves the needs of the capital providers upstream. That’s why, when we’re managing it, Most importantly, asset allocation should be used to meet the actual needs of the investors. ， This is what we believe the managers of the master fund should do in different environments and under varying conditions.
Market Watch
(1) Fundraising
First, there’s a persistent shortage of long-term capital—specifically, we’re lacking both "old money" and patient investors. Overall, the supply remains static while the proportion of patient, long-term capital is insufficient. In other words, this ecosystem still requires a gradual building process, and such a dynamic, iterative setup naturally takes time. 。 Although a shortage of long-term capital is the current reality, it will take time and patience to address. In global alternative markets, pension funds and insurance reserves represent sources of long-term capital—and in China today, much of the family wealth is gradually shifting toward these longer-term investments. This trend signals a positive trajectory for the future.
Next is the issue of fund structure adjustment. In the market, RMB-denominated funds have experienced rapid growth since 2008. In just 14 to 15 years, they’ve gone through three major setbacks, prompting significant adjustments in both personnel and structure—among which the fund structure has played a particularly prominent guiding role. Today, government funds make up the largest portion of the market's capital structure, accounting for a significant share. State-owned enterprises are also relatively major investors, and notably, insurance funds have been steadily increasing their stake in equity investments. 。 We believe insurance funds will positively influence the market, as the objectives of the government, state-owned enterprises, and insurers differ—and these distinct priorities will ultimately shape the overall direction of capital allocation.
In the market, the participation of private capital is very limited. ， This represents a disruptive shift compared to 2014 and 2015, when private enterprises were dominant. However, it’s undeniable that today, the overall volume differs fundamentally from that of 2014 and 2015. As the market expands, it’s also natural for the share of private capital to gradually decline.
The second one is The Matthew effect is clearly at play—today, it’s no longer a matter of the 80/20 rule; instead, 10% of the team is capturing 90% of the funding. This creates an incredibly strong concentration effect across capital, putting even more pressure on top-tier GP managers to deliver exceptional results. 。 It’s incredibly challenging to not only survive but thrive in the face of constant iteration and volatility in a market like this. Moreover, the entry of CVC (Corporate Venture Capital) into the equity market has become strikingly evident. These industrial capital players are remarkably adept at driving growth across entire industry chains, empowering small and medium-sized enterprises, and delivering robust value-added services. Of course, their approach to equity investments is somewhat distinct from traditional methods, and their presence has inevitably created a ripple effect, shaking up the existing equity landscape. As a result, we’re witnessing… Currently, the market involves various competing forces, leading to a state of volatility, chaos, and constant reshuffling.
The fundraising environment for U.S. dollars has changed. In the development of China’s private equity market, U.S. dollar funds have always been important participants, accounting for about half of the market. However, from the second half of last year to the first half of this year, overseas investors have been holding back, adopting a wait-and-see approach, which will affect the fundraising efforts of RMB-denominated teams. Furthermore, we have observed that different investors and general partners (GPs) are gradually showing differentiation in their industry preferences within RMB teams. When we first entered the market, RMB teams and U.S. dollar teams were completely separate. Over the years, with market development, they have become increasingly similar, learning from and referencing each other. Today, this kind of internal division and differentiation within a single team has begun to appear. What the future holds remains to be seen, but the situation is fundamentally different from before and is worth observing.
(II) Investment
Investment momentum has slowed down, and everyone can clearly feel it—work-from-home arrangements and online due diligence processes aren’t exactly conducive to advancing projects.
Under the current objective circumstances, we can’t accelerate; however, subjectively, we’re conducting thorough research on GPs, closely monitoring the broader corporate landscape and market trends—including macroeconomic shifts and overall industry directions. At the same time, amid the ongoing pandemic, we’re assessing the resilience of the companies we’re considering investing in, evaluating whether they can maintain steady growth even under challenging conditions. We’ve also revisited and refined our investment review criteria, as many industry-focused GPs are currently reevaluating their own investment parameters. Meanwhile, we’re engaging in more robust price negotiations with portfolio companies, aiming to drive valuations lower. Notably, across various sub-sectors, we’re observing a clear downward trend in valuation levels compared to the same period last year. As a result, our valuation framework is undergoing a significant restructuring— a shift that’s likely to have profound implications for future investment decisions.
Additionally, regarding GP investment strategy selection and adjustments, the entire hard-tech sector—including semiconductors, equipment, and even consumer-grade chips—has recently experienced overheating. Meanwhile, data-driven applications and the broader "dual-carbon" initiative remain hot investment areas. Amidst this dynamic landscape, all GPs are not only staying firm in their traditional markets but also continuously exploring cross-industry opportunities and making strategic new investments. Both RMB-funded and USD-funded teams are actively adapting to these evolving trends.
(III) Management
Investment is slowing down, giving us more time to focus on management, assess cash flow, and evaluate the potential for companies' next funding round. Meanwhile, the entire valuation system is being reshaped, making it increasingly challenging—though to varying degrees—for companies to secure their next round of financing. This situation poses a significant challenge for existing investors. Under these circumstances, are we better off continuing to invest and help companies navigate these tough times, or might this approach, in some ways, actually accelerate the pace of innovation and transformation within those businesses?
Internally, many GPs are strengthening their mid-office management capabilities—such as building robust data systems and implementing more granular, refined management practices. Following this, they’re conducting post-investment reviews to discuss the next wave of investment strategies. Today, everyone is already brainstorming what to invest in next—and using these discussions to refine, readjust, and even redefine their investment criteria and standards for the future.
(4) Exit
Regarding exits, the most challenging aspect for GPs in the first half of this year was the exit side—specifically, the pressure on our DPI remains quite high. The core reason is: Although the overall exit channels have become much smoother compared to previous years, and companies are indeed going public, the sharp decline in stock prices and the sudden drop in trading volume continue to put significant pressure on the entire DPI sector. We’re observing that the exit strategy for the U.S. stock market remains unclear and will require further monitoring. Meanwhile, Hong Kong stocks are under pressure, with both their size and issue prices significantly impacted. Everyone can relate to these challenges—under such conditions, it’s entirely normal for stock performance to fall short of expectations. Yet, even in this less-than-ideal scenario, there still seems to be no one willing to step in and buy, leaving the entire GP team holding onto their shares and patiently waiting for better times ahead.
For companies that aren’t yet listed, going public on U.S. stock markets is challenging, while Hong Kong stocks are also seeing long queues—and at very low issue prices. That’s why many firms are now leaning toward returning to the A-share market, especially since A-shares have delivered impressive performance this month, showcasing strong upward momentum. As a result, a growing number of companies are seriously considering listing on A-shares. A-shares clearly favor listed companies, which also prompts us—from an investment perspective—to rethink our strategies once again: How can we craft a well-structured approach that not only ensures solid returns but also sets up a robust exit mechanism?
Currently, exit strategies are the most critical area under pressure, but they’re looking increasingly positive in the medium to long term. In particular, we’ve noticed that progress in exiting the market over the past few years has been remarkably evident—clearly, the process of exiting is steadily moving in a favorable direction.
First, there’s the multi-tiered capital market—specifically, the STAR Market and the registration-based system. Second, there’s a clearly visible shift in fund managers’ mindset. Under the pressure of overall exit strategies and DPI targets, managers are now deeply focused on exit planning, reflecting the significant growth of GP management teams over the past few years. Just a few years ago, when raising capital, managers would invariably emphasize only their investment strategies and standout project highlights. Today, however, they routinely present comprehensive exit plans, including DPI considerations, as part of their fundraising pitches. This evolution is a truly healthy sign of industry maturity.
Given this overall market landscape, we believe the rise of the S Fund market is accelerating rapidly—despite the fact that we’ve been talking about it for many years. But today Whether it's the external environment, internal aspirations, or objective needs, the S market has reached a stage of development. ， From the perspective of FOF managers, we’re actually quite pleased to see this situation unfolding. Additionally, industrial M&A activities are gradually picking up, as the current state of the IPO market has clearly boosted momentum in the M&A space. Whether it’s active deal-making among publicly listed companies or between non-listed and listed firms, such transactions are becoming increasingly common—providing valuable opportunities for GPs considering exit strategies.
These are our observations of the market.
Based on this situation, from Yuanhe Chencun's perspective, here's how we think and act—first of all, we have a strong sense of persistence:
First, stick to the core positioning of the fund-of-funds. Position. Over the years, we’ve aimed to continuously optimize and build our own ecosystem, fostering strong collaboration at the GP level.
Second, maintain a strong focus on technology and small-to-medium-sized enterprises. ， VC and GROWTH funds are our primary investment targets.
Third, maintain a relatively steady allocation pace, provided funding allows. 。 No matter how the market adjusts, maintaining a steady investment pace—moving forward year by year—is the most effective strategy for navigating market cycles and striving for consistent returns. That’s why we’ll continue to stick with this approach.
Fourth, adhere to the principle of portfolio allocation. We’d rather sacrifice so-called hot spots, aiming instead to build a stable, diversified portfolio across various industries. This approach allows us to navigate through cycles of industry change, ultimately seeking consistent and reliable investment returns.
However, we’ll still have subtle adjustments and changes:
First, the white-horse and dark-horse strategies have been discussed extensively over the years—and it’s definitely time to make some adjustments and updates. We’ve divided our team into three categories. First, we’re focusing on nurturing early-stage startups—specifically, we’ve allocated a certain percentage of our capital to these budding teams. We believe that, in today’s rapidly shifting industry landscape, there’s even greater potential when startups and established players collaborate. Second, we’re committed to supporting growth-oriented teams as they transition from small, fledgling startups to more mature organizations. This journey is long and challenging, but we’re eager to walk alongside them every step of the way. And once these teams reach maturity, we’re confident that our collaboration will deepen further, offering even more meaningful support and partnership. Finally, investing in both the teams and their GPs to back individual projects follows the same principle: each stage of a team’s development calls for entirely different evaluation criteria for us, and accordingly, we provide tailored post-investment services to meet their unique needs at every milestone.
Second, we've been steadily deepening our engagement with the industry chain over the past two years. Because we aim to uncover industry-focused, emerging teams, we need to pursue some direct-investment projects. Deeply immersing ourselves in specific industries is something we’ve consistently upheld over the years—and it’s also how our team continues to learn and grow.
Third, we will carry out industrial restructuring. While healthcare, B2B, and B2C are central to our overall strategy, we’ll adjust the specific allocation ratios based on market changes—this approach ensures we better align with the evolving landscape and drive overall growth.
Fourth, strengthen management. Throughout our post-investment activities, we’ve introduced the concepts of "flexible management" and "data middleware." Our goal is to use the data middleware platform to seamlessly integrate all aspects of management into a unified system, enabling us to tailor investment services and management requirements to the specific needs of each unique team. This is exactly what we’ve been focusing on over the past several years.
Finally, for professionals investing in equity in today’s market, we generally have two options: we can choose to go it alone, or we can adopt an institutionalized approach. Those present Everyone is primarily operating under an institutional model—so if we’re institutional managers, nurturing our core competencies is the key to ensuring our long-term sustainability. Since we ourselves are also a company, when investors evaluate us, their primary focus is on selecting a qualified management firm—whether it’s through direct investments or fund-of-funds. After all, when we meet with LPs, they’re not just assessing us as individuals, but rather the overall management capabilities and upward momentum that our company as a whole embodies. Each fund is a product of the management company—so if a fund performs well, it certainly reflects the strength of our products. However, a fund is just one component of the company; it doesn’t represent the entire organization. Strengthening internal capabilities across all areas—such as organizational structure, strategic planning, internal systems, talent development, and compensation frameworks—is the core foundation for the company’s long-term growth. It’s also precisely the kind of capability that many institutional investors look for in a manager. Let's encourage each other—we all need to put in more effort and deeper thought in this area, strengthening the development of our internal core.
In this ecosystem, every manager needs to clearly define their positioning—since different roles require distinct approaches. Moreover, under varying circumstances, both the overall investment strategy and the development of team capabilities will differ significantly. This is a mindset—and a capability—that we must collectively cultivate and refine together. At the same time, by building strategic partnerships, we can foster collaborative, symbiotic relationships that not only strengthen the broader ecosystem but also empower us as managers to continuously grow within this system, deepen our industry insights, and optimize our access to critical resources.
These are the key points I’d like to share with you today. In this new environment, it’s not easy for anyone to thrive—but let’s stay strong, keep moving forward, and continuously strengthen our own capabilities. Thank you all!
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