April 27–29, with the theme "Innovative Approaches to New Industry Chains" ” The 8th Global M&A Summit was successfully held in Shanghai’s Hongqiao Fund Town. Organized by MorningWhistle Group and co-hosted by the Shanghai Innovation & Entrepreneurship Investment Center, the summit brought together nearly 600 representatives from industry and investment sectors. On the third day of the event, Xu Qing, Managing Partner at Yuanhe Chencun, delivered a keynote speech titled "How S Funds Can Enhance LP Capital Efficiency to Drive Emerging Industries."

Key Quote Summary

1. Technology innovation driven by digitalization and intelligence, along with the resulting innovative industries and the upgrading of traditional sectors, are the primary strategic focus areas for Yuanhe Chencun in the coming period.

2. If the LP keeps changing constantly, it will definitely harm the GP, so we need to ensure the stability and long-term effectiveness of our investors and capital. To address this issue, an S Fund is a particularly effective model.

3. The biggest advantage of the S Fund is that it allows institutions and individuals to choose the optimal timing for entering and exiting investments, reshaping the duration of equity investments and enabling a more efficient allocation of resources across entire industries.

4. S acts as an investment time machine, allowing you to set up funds from 8 to 10 years before the current date—and by paying a premium, you can regain the opportunity to make new selections.

5. Why does everyone particularly love Fund S? Because even when there’s a very clear-cut asset package, it still gives you the chance to pick up additional investments.

6. After working with FOFs for so many years, every year everyone expects China’s secondary market to finally take off—but why does it still fail to gain momentum? From my personal observations, I believe S funds remain an investment space full of both randomness and opportunity. For now, the core characteristic of all transactions here continues to be opportunistic rather than a structured, repeatable business model.

7. Today, there are many ways to value assets—every institution has its own approach. As a fund-of-funds, Yuanhe Chencun also relies on its own unique valuation system. However, making this valuation system mutually accepted by both buyers and sellers, and achieving consensus among all parties, remains an exceptionally challenging issue.

8.  Could we consider establishing a state-owned takeover fund? This way, the transaction would eliminate any concerns about the potential loss of state assets. Are similar approaches worth exploring and experimenting with? I’d love to collaborate with industry peers to pioneer innovation in S-transactions.

Here’s the full transcript of Ms. Xu Qing’s speech:

After the pandemic, China’s economy quickly rebounded and continued to grow, with every segment of the private equity industry thriving. In 2020, a total of 604 companies successfully passed A-share IPO reviews, achieving an approval rate of 96.18%—a remarkably high figure. Meanwhile, 20% of listed companies accounted for 75% of the market capitalization. This clearly highlights the growing "Matthew effect" across the entire capital market.

How can the rapidly growing private equity industry effectively integrate with industries—this is a question we’ve been deeply pondering. Private equity funds should bridge resources and capital across various stakeholders, fostering innovation and technological advancement on a broader scale. While technological innovation holds immense investment opportunities, it also comes with significant risks. Moving forward, we’ll focus primarily on technology-driven innovations—particularly those powered by digitalization and intelligence—as well as the innovative industries they spawn, alongside the transformation and upgrading of traditional sectors.

With the implementation of the registration-based system, a clear shift has emerged throughout the capital markets ecosystem—both upstream and downstream. On one hand, investment is now increasingly focused on earlier stages, as companies aim to go public sooner, requiring management teams to develop deeper industry insights and stronger capabilities in front-end investments. On the other hand, how investment firms can effectively help listed companies manage their market capitalization and optimize capital strategies down the line has become a critical consideration. In this evolving market landscape, every manager must carefully assess their own role and positioning to stay competitive.

In the future, shifts driven by underlying technologies and capital will reshape—and even disrupt—the investment logic in primary-market equity deals. Particularly with state-backed capital increasingly entering the equity arena and Corporate Venture Capital (CVC) rapidly expanding, the once-stable market-oriented models will need to adapt and evolve. As a fund-of-funds manager, we’re witnessing the market’s rapid pace of technological innovation, which is also fueling swift rotations among investment hotspots. This dynamic reality underscores the need for managers to stay agile and align with these evolving market trends.

Suzhou Industrial Park’s BioBAY biopharmaceutical industrial park is a perfect example of the successful integration of equity investment and industrial development. Established in 2006 under the umbrella of Sino-Singapore Venture Capital Holdings—formerly known as Yuanhe Holdings—BioBAY marked a groundbreaking initiative at the time by being spearheaded entirely by an investor-led entity. Thanks to the strong involvement of capital, BioBAY has since forged a unique path of innovation within the industry. Today, it exerts a remarkably strong "siphon effect" on the emerging pharmaceutical sector, hosting over 430 innovative biopharmaceutical companies and attracting more than 15,000 high-caliber professionals to settle in the area.

GP The first challenge is always raising capital. At the heart of this difficulty lie several key factors—among them, the excessively long investment horizon. If equity investments can't commit to a long-term time lock, they won’t be able to effectively support technological innovation and industrial growth. Moreover, frequent changes in investors inevitably harm GPs, making it crucial to ensure the stability and long-term viability of both investors and capital. To tackle this issue, Structure (S) emerges as an exceptionally effective model.

S Shares essentially involve the transfer and acquisition of existing fund holdings—though in some cases, they also refer to the transfer of existing shares in specific projects. S plays a key role in industry support and innovation, while simultaneously enabling strategic positioning, trading, integration, and even reshaping within industrial value chains. In fact, S also functions as a FoF, offering a relatively stable portfolio of assets that balances returns and risks across diverse investment strategies.

S The biggest advantage of a fund is that it allows institutions and individuals to choose the right timing for entering—and exiting—investments, effectively reshaping the duration of equity investments and enabling a more efficient allocation of resources across entire industries. Imagine you’re on a shuttle bus traveling from Hongqiao Airport to Pudong Airport. If all you know are the starting and ending points, the number of people who can actually board and participate is severely limited—this is precisely why fundraising remains so challenging, as the pool of potential contributors and available capital flows is inherently small. But what if we added ten stops along the way between the start and finish? Suddenly, the opportunities for passengers to hop on and off would skyrocket—dramatically boosting participation and engagement at every stage.

In a fully developed secondary fund, investors have numerous opportunities to trade at various points in time, allowing them to enter and exit the market at their convenience. This makes the product incredibly attractive—its ability to simplify the challenges of long-term investing while simultaneously providing liquidity to investors tells a completely different story. The S Fund involves a structured process of integration and value discovery, where the timing and pricing of entry directly influence potential returns. At the same time, it empowers LPs to reassess their strategic direction, enabling them to better navigate market cycles and unlock hidden value. From the manager’s perspective, this also creates greater flexibility in execution—precisely what I believe is the S Fund’s most critical advantage. Ultimately, the S Fund, in many ways, opens up new possibilities for exits and significantly enhances the efficiency of capital deployment across investment cycles. This is precisely why its value lies at the heart of what makes the S Fund so unique and impactful.

S The fund acts like an investment time machine, allowing you to allocate capital into funds that were launched 8 to 10 years ago—essentially giving you a second chance at selection, albeit at a premium. Through S Fund transactions, we gain more opportunities while also being able to assess asset quality over a broader timeline, or even reselect the teams we truly want. That’s why everyone particularly loves S—it not only provides access to highly curated asset portfolios but also offers you the chance to "buy back" what might have slipped through your initial screening.

Having worked with FOFs for so many years, every year everyone expects China’s S-fund market to finally take off—but why does it still fail to gain momentum? From my personal observations, I believe S funds remain an investment space deeply rooted in chance and opportunism. While the market certainly sees frequent S-fund trading opportunities popping up, no matter how often they occur, the core nature of these deals today is still driven by opportunity rather than becoming a structured, sustainable business. And if it isn’t treated as a true business, it inevitably lacks systemic stability—and without that, the market can’t achieve efficient circulation or long-term growth.

S For the fund to identify systematic opportunities, the following points are needed:

First, the S Fund market needs a universally recognized valuation system. Currently, there are numerous valuation methods—each institution tends to develop its own approach. As a fund-of-funds, Yuanhe Chenkun also has its own unique valuation framework. However, achieving mutual recognition of this valuation system by both buyers and sellers, and ensuring everyone can reach a consensus, remains an exceptionally challenging issue.

Second, a rational market trading mechanism is needed. Both Beijing and Shenzhen are establishing S-fund trading platforms specifically to address the challenge of how buyers and sellers can reach a consensus on the true value of the assets themselves.

Third, a complementary supervision and management system is needed. We require such a system, but only after the scale of the front-end market has first begun to grow. Once that happens, supporting intermediary services—such as legal and accounting services—will rapidly expand as well. When the market demands it, professional institutions will certainly be able to deliver the corresponding expertise.

How to foster an internal circulation within the current market environment dominated by state-owned capital is a question we must carefully consider. It’s foreseeable that state-owned capital will increasingly account for a larger share of the overall LP structure, making it essential to address how we can prevent the outflow of state assets—a challenge that cannot be ignored. Perhaps we could explore establishing a purely state-backed fund to take over investments, ensuring that no state assets are lost during transaction processes. I’d like to invite industry peers to join me in pioneering innovative approaches to S-trading and pushing the boundaries of this emerging field.

We sincerely hope that the thriving S Fund market will inject greater vitality and fresh energy into the private equity industry, helping to continuously improve and grow this market. For Yuanhe Chencun, our goal is to consistently deliver strong returns to our LPs, while maintaining integrity and professionalism in everything we do—qualities that earn the trust of everyone involved.

This is my share—thank you, everyone!