Industry insiders believe that, S Fund transactions can be divided into two categories: one is the "bargain-hunting" type, which excels at aligning with return-risk expectations but doesn’t necessarily deliver significantly above-market economic impact. The other is "allocation-based" investing, acting as a strategic "time machine" for portfolio positioning. For fund-of-funds or investment institutions, this approach allows them to opportunistically add to existing assets—filling gaps in their current allocations by acquiring assets they may have missed out on in the past.

From the perspective of Yuanhe Chencun's practical experience, the majority of S-fund transactions currently taking place are LP-led trades of S-fund shares, accounting for 90% of the market share. LP-led S-fund deals offer significant value to buyers, sellers, and intermediary service providers alike. For LPs, these transactions enable rapid DPI returns, while for GPs, S-fund shares serve as a valuable tool for fostering communication or facilitating more complex hybrid deals—and even as a strategic means of connecting with potential new LPs.

On the other hand, GP-led S-fund transactions account for around 10% of the market share, but this segment is fraught with significant uncertainty and uncontrollable factors. From the perspective of the underlying funds, selecting projects requires even sharper judgment—posing a major challenge not only to individual S-funds but also to the broader S-fund market as a whole.

Looking at mature S-trading markets overseas, LP share trading is already highly prevalent, entirely driven by the supply-and-demand dynamics of capital: when there are more buyers than sellers, discounts tend to be lower, whereas when buyers are scarce and sellers outnumber them, discounts rise significantly. Therefore, for the domestic S-fund market, the new reforms on the supply side are crucial for industry development. This is because the overall existing-market size is steadily expanding, while demand remains exceptionally strong. As a result, supply-side reforms are essential to help the market achieve a more balanced and streamlined environment that facilitates smoother transactions.

Against the backdrop of a booming market and growing demands from both supply and demand sides, more sophisticated and cutting-edge transaction structure designs are set to become the mainstream in the future. This will require the active involvement of numerous specialized intermediary firms or investment banks, which can tailor-make customized, personalized solutions based on the specific needs of buyers and sellers. Such designs may include layered transaction structures, incorporate safeguarding clauses, or even feature creditor-like structural arrangements.

From a market-wide perspective, S-fund transactions have attracted significant attention this year. Looking at the ecosystem involving both parties to the deals, regulators, and intermediary institutions, the market truly seems poised for a major breakthrough—ready to take off once all the pieces fall into place. At the heart of this dynamic lies the most fundamental driving force: The primary market has now gradually transitioned from an incremental-market phase to one focused on existing assets. During this process, numerous opportunities will emerge for buyers, sellers, and intermediary service providers.

From the buyer's perspective—or, in other words, from the standpoint of capital providers—the market has evolved from an era dominated by retail investors to one increasingly shaped by institutional players. In the past, both buyers and sellers were individual investors; today, S-fund transactions have become primarily institutional in nature. As a result, market behavior is becoming more rational and aligned with market dynamics, while transaction prices are gradually moving toward a more balanced and realistic range.

From the perspective of market transaction volume, deals ranging from 50 million to 100 million account for the vast majority, indicating that the S-fund market remains highly fragmented. This poses significant challenges for larger S-funds: first, it becomes increasingly difficult to consistently secure high-quality assets; and second, although individual transactions are smaller in scale, they still demand the same level of time and effort—resulting in higher overall transaction costs.

So, The four main challenges faced by all parties involved in S-Fund transactions are: First, there’s the issue of information asymmetry and lack of transparency between the two parties in S-fund transactions, leading to differing expectations and creating challenges in communication and negotiation. Second, pricing remains a major hurdle, as buyers and sellers often have vastly divergent views on the appropriate price range—and securing alignment from the GP further complicates the process. Third, the intermediary service ecosystem in the market is currently underdeveloped, with limited practical experience available. Even foreign-backed S-fund intermediaries are still in the process of localizing their operations, resulting in a scarcity of firms capable of delivering comprehensive, professional services. Finally, there’s a unique challenge tied to the transfer of state-owned assets: ensuring that these assets are traded efficiently while maintaining both value preservation and transparent, open-market principles—a task that will require dedicated efforts from official platforms.

Despite the numerous challenges and obstacles surrounding S-fund transactions, the overseas market—and indeed the Chinese market—continues to thrive and grow rapidly. As a result, the market prospects for S funds remain incredibly broad and full of opportunities. Of course, this also places high demands on both buyers and sellers, as well as GPs and intermediary institutions.

Given the current situation, everyone will embrace positive changes, striving to move closer to the middle ground and ultimately forge a shared value proposition to address these challenges.

Looking at the overall development prospects of the S Fund, although the road ahead may be winding, the future is undoubtedly bright.