On August 25–26, 2022, the 5th Golden Hui Awards Annual Gala and China Private Equity Fund Summit were successfully held online. This forum was jointly organized by the Golden Hui Awards Committee and TMTPost, hosted by Global Digital, with NetEase Media as a strategic partner. The Shenzhen Venture Capital Industry Association, Beijing Venture Capital Innovation Service Alliance, Shanghai Jiao Tong University Shanghai Advanced Institute of Finance, Mother Fund Research Center, Zhizhong, and Yuandian Zhihui served as co-organizers. Xiaolu Business Media acted as the cooperating media, focusing on the development trends of the mother fund industry and creating a prestigious intellectual event for China’s equity investment market.

Yuanhe Chencun is a fund-of-funds management company established in 2006, and it is believed to be China’s first RMB-denominated fund-of-funds firm focused on investing in VC funds. To date, we have invested in more than 150 funds managed by nearly 80 investment teams, supporting over 3,600 companies—among which more than 220 have gone public. As a 16-year-old fund-of-funds, we’ve continuously monitored shifts in the equity market.

This year in the first half, Suzhou was designated as an epidemic-affected area starting in mid-February due to the overall impact of the pandemic. The city endured roughly three months of strict epidemic control measures, which also involved Shanghai and later, multiple sporadic outbreaks across various regions. Our GPs are primarily based in Beijing, Shanghai, Guangzhou, and Shenzhen—and during the pandemic, we’ve actually maintained extensive communication with everyone. We’ve also observed several notable shifts in the equity market in 2022, and we’d love to share these insights with you today.

"We summarize the 'integration' part with one word—difficult." Everyone, the image on the left (in the PPT) shows the financing situation from 2018 to May 2022—but by 2022, we actually saw a fairly noticeable decline in these figures. We believe the current equity financing market is characterized by two key factors: first, China’s equity market lacks long-term capital, as well as investors whose primary focus is asset allocation.

Third, the Matthew effect is particularly pronounced. In the market, the top 10% of fund managers have already raised 90% of the total capital—this figure could even be higher, with perhaps as little as 5% of investors capturing as much as 95% of the funds. Meanwhile, GPs positioned below the mid-tier are facing significant challenges in fundraising and survival in today’s competitive landscape.

Fourth, as industrial capital, CVC has been making strong inroads into the market over the past 2-3 years, building on its initial momentum from five years ago. As an investment platform equipped with industry-chain resources, CVC has wielded significant influence in shaping industrial ecosystems and fostering the growth of mid-sized and small enterprises within those chains. At the same time, I believe CVC not only possesses a keen ability to assess both projects and industries but also excels at providing robust post-investment support—capabilities that set it apart from traditional VC/PE models and portfolio management approaches. In fact, this unique approach is already disrupting some of the established hierarchies in the equity market. That’s precisely why we’re optimistic about CVC’s potential as a new-generation investment force driving meaningful change in the marketplace.

Fifth, from last year to the present—especially since the Russia-Ukraine war—we’ve seen significant shifts in the U.S. dollar fundraising environment, with overseas investors still adopting a relatively cautious, wait-and-see approach. We’ve always emphasized "One team, Two funds," meaning a single team manages two distinct currency-denominated funds. Today, most of China’s mainstream funds actually operate under this model. However, as the U.S. dollar landscape continues to evolve, we believe that differences among investors, investment regions, investment strategies, and exit destinations will increasingly lead to greater divergence between local-currency and foreign-currency funds.

Originally, there was a certain overlap between USD and RMB investments—such as RMB-denominated ODI projects investing in overseas-listed ventures, or USD funds coming in to form JVs for domestic listings. However, as awareness around data security and emerging fields like genomics continues to grow, some projects may now only be viable with RMB capital, while others—like Web3.0 initiatives—may require exclusively overseas USD funds. As a result, varying LP structures, the unique nature of each project, and the geographic regions where these projects are located could lead to a future where RMB and USD funds become less aligned in their investment strategies. In fact, even within our own large team, we’ve observed distinct specializations: some teams focus solely on USD deals, while others concentrate exclusively on RMB opportunities. This shift reflects broader changes we’re seeing on the fundraising side. Overall, both investors and management teams are navigating an evolving landscape, and the industry’s ongoing reshuffling is becoming increasingly evident.

The second part is investment. This year, investment can be summed up in one word—slowing down—as everyone is taking a more cautious approach. Affected by the pandemic, investment activity clearly decelerated in the first half of the year. Meanwhile, with more teams working remotely, conducting online due diligence, and managing post-investment activities from home, institutions themselves have seen their investment efficiency somewhat impacted.

On the other hand, while most institutions have slowed down their investment pace, they’ve simultaneously intensified their industry research—and taken their analysis of the macroeconomic landscape and policy environment to an unprecedented level. Many institutions are now conducting internal reviews, engaging in thorough discussions, and raising their internal approval standards. Additionally, due to the impact of the pandemic, several deals that were previously in progress have undergone significant changes, such as price renegotiations, as broader market conditions continue to evolve. In light of these sweeping shifts, we believe the valuation framework itself is undergoing a major restructuring.

In terms of investment choices, hard tech sectors—such as semiconductors and equipment—as well as data-driven applications and the "dual carbon" initiatives (including new materials and new energy)—remain current investment hotspots. Meanwhile, consumer goods and healthcare sectors, which experienced heightened popularity in the past two years, are now seeing some valuation adjustments as investors return to a more rational approach.

Overall, it becomes clear that while most companies are focused on strengthening their core areas, many teams are also leveraging this opportunity to explore new investment opportunities and actively adjusting their existing strategic deployments.

The third part is management. During the pandemic, we conducted detailed post-investment interviews for nearly all of the managed sub-funds—and noticed that stakeholders are increasingly prioritizing post-investment management. On one hand, it’s about empowering portfolio companies; on the other, it’s about helping them navigate through crises. For the companies we’ve invested in, we typically assess their cash flow situation and evaluate how the pandemic has impacted their business operations. At the same time, we assist them in mobilizing various resources to resume production and business activities as quickly as possible. Some companies even start exploring opportunities for survival and growth, preparing for their next funding round. In such moments, investors can provide valuable support by remaining relatively flexible—whether in terms of valuation or willingness to accept more accommodating deal terms.

The institutions are also strengthening their internal management. As mentioned earlier, we’ve observed everyone actively reviewing past performance, placing greater emphasis on industry research—and even rethinking their next steps in terms of investment strategies and priorities. Meanwhile, it’s worth noting that during the pandemic, some institutions have been making strategic adjustments to their organizational structures, while teams are reassessing roles and reallocating resources for a fresh, forward-looking approach.

Overall, the key words for management are—support and control.

Part Four: Exit. In the investment, financing, management, and exit cycle, we believe the exit phase is under the most pressure this year. On one hand, we’ve observed a significant decline in the number of publicly listed companies—clearly visible in the chart on the left (in the PPT)—as well as a near-record low in fundraising amounts from both domestic and overseas listings. We’ve also noticed that for previously invested funds, particularly those holding portfolio companies that have already gone public but haven’t yet unlocked their shares—or even after unlocking, where exits remain challenging—their stock prices continue to face considerable downward pressure, mirroring the trend seen in 2021. In fact, during Q1 of this year, stock prices experienced a noticeable drop, especially among Chinese concept stocks and certain Hong Kong-listed shares. In some cases, these stocks have even fallen below the original cost price at which investor institutions initially acquired them. Meanwhile, many companies listed under Hong Kong’s 18A framework are currently struggling to secure successful IPOs. And even when they do manage to list, their share prices often end up trading below the issue price. As a result, whether investors in Hong Kong stocks or U.S.-listed Chinese concept stocks are looking to exit, they frequently find themselves facing a lack of trading volume and limited liquidity, leaving them with no viable options other than holding onto their holdings and waiting for better market conditions.

For projects that haven’t yet exited, we believe the capital market remains the primary choice for everyone, and A-shares will undoubtedly continue to be the main battleground in the future. This is partly because there’s still no definitive conclusion on whether Chinese companies can continue listing and issuing shares in the U.S. right now. Everyone is waiting to see if the SEC in the U.S. and China can eventually reach some form of reconciliation or cooperation. Under these circumstances, some companies may still opt to list in Hong Kong instead.

However, the current issue is that Hong Kong's stock market has remained relatively sluggish over the past two years. On one hand, this is due to capital outflows as international investors pull back. At the same time, a significant number of new shares have been listed, straining the market's overall capacity. As a result, investors are primarily drawn to only the largest-cap stocks that demonstrate strong trading activity—stocks that naturally stand out in terms of liquidity and investor interest. Meanwhile, most other individual stocks—whether measured by price, P/E ratios, or trading volume—simply haven’t performed well enough, making it even harder for investors to exit their positions, even in the Hong Kong stock market.

Compared to U.S. and Hong Kong stocks, we believe that although A-shares have undergone some valuation adjustments, overall, both the pace and rhythm of new share offerings, as well as the initial listing prices, remain within a relatively reasonable range. Therefore, we still view A-shares as the primary battleground for China's capital markets in the future.

Under exit pressure, we believe M&A and S-fund deals are poised for more opportunities. On one hand, we recognize that certain projects still require exits, as funds operate within a finite timeframe—and assets need to be liquid and actively traded. As a result, we expect S-fund transactions to become even more dynamic in the future. Moreover, we’ve observed that, amid broader market valuation pressures, buyers and sellers are now able to reach alignment more swiftly, significantly boosting the likelihood of deal closures compared to the past.

Meanwhile, the M&A market is also expected to emerge more quickly than anticipated, encompassing mergers and acquisitions not only between publicly listed companies but also among privately held firms—and even between listed and non-listed companies.

Overall, since Yuanhe Chukun has been operating for 16 years—from 2006 until now—everyone keeps talking about "navigating through cycles." But frankly, we believe that change is the norm, and we should approach it with a calm and balanced mindset. We remain firmly optimistic about China in the long term, just like all other primary equity market investors in the country. After all, we think that value-driven investors will always be in demand.

With today’s evolving LP market—and the shifts occurring in capital markets—we believe that China’s private equity investment journey will undoubtedly differ from that of overseas markets, particularly the U.S. We see greater potential for multi-product-line asset management firms operating in the primary market. In fact, China’s asset management sector holds immense promise for the future, but it will require a new generation of top-tier asset managers to effectively allocate and optimize investments.

Looking ahead in the medium term, we believe that advancements in technology and the evolving capital markets are creating greater opportunities for the growth of fund-of-funds. It now depends on how well we adapt to and adjust to these new changes—ensuring that we can maintain our core competitive edge amidst shifting dynamics. Whether it’s a fund-of-funds or our direct-investment funds, everyone should temper their expectations. After all, the era of rapid, high-growth returns may have already passed. In this new historical context, we must remain vigilant in identifying investment opportunities while keeping our expectations appropriately calibrated—and staying humble in the process. In fact, many strategies and approaches that worked effectively during the previous phase of high growth may no longer be relevant today due to changing market conditions. That’s why it’s crucial to stay true to our original intentions, start fresh, and embrace a mindset of continuous learning as we move forward.

For now, we’ll continue to observe patiently—just like everyone else—slowing down the pace a bit and approaching things with a calm, balanced mindset. At the same time, we’ll strengthen communication both internally and externally, trusting our own judgment as we navigate this competitive landscape. We encourage everyone to work together on post-mortems, identifying areas for improvement while also recognizing what’s already been done right. Additionally, we’ll emphasize refining our internal structures and processes to ensure greater efficiency and effectiveness moving forward.

To adapt to change, I believe we must also focus on the two key themes of independent innovation and technological advancement. While the pandemic and the Russia-Ukraine war have been relatively short-lived, geopolitics will nonetheless have lasting implications for future development. Moving forward, China will undoubtedly follow a dual-circulation strategy, with domestic circulation at its core. Under this economic model, we must first strengthen the development of factor markets, and second, accelerate the establishment of a unified, large-scale domestic market. At the same time, we need to address critical gaps in technological innovation and further refine the system that bridges state-owned assets into state-owned capital—and ultimately into efficient state-capital operations—thereby boosting the overall flow of capital.

At the same time, we must strengthen the nation's strategic scientific and technological capabilities, enhance our capacity for technological innovation, unleash the creative potential of talent, and refine the systems and mechanisms that support scientific and technological advancement. This is critically important in the long run.

Technology-driven emerging industries and the iterative evolution of traditional sectors represent a long-term, lucrative investment opportunity for the future. As a fund-of-funds manager, we remain steadfastly focused on technology and small-to-medium-sized enterprises, as Yuanhe Chencun has consistently prioritized VC funds as its primary investment targets.

Finally, we believe that industry development driven primarily by technology and digitalization represents a long-term investment theme—this conclusion is based on our discussions and interviews with both our fund and its sub-funds. Looking ahead over the next 3 to 5 years, we see significant opportunities in areas such as new energy technologies, cutting-edge life sciences, advanced materials, innovative space technologies, frontier tech, as well as the brand/consumer sector and their respective niche tracks. At the core of these industries remains the dominance of technology and digitalization, which will inevitably give rise to new, specialized segments and markets. We’re pleased to note that several of these emerging niches are already attracting attention from our GPs, with some even already establishing robust strategic positions. As a result, our fund-of-funds will continue to closely monitor these industries, providing sustained financial support to help them thrive.

These are our reflections and observations from the first half of this year—we’d love to share them with everyone. Thank you all!