From September 9 to 11, the highly anticipated "2020 China Fund-of-Funds Summit & 2nd Lujiang Venture Capital Forum" kicked off grandly in Xiamen. Organized by *Fund of Funds Weekly* and the Xiamen Municipal Bureau of Local Financial Supervision and Administration, the summit was co-hosted by Jianfa Group, Jinyuan Group, Xiamen International Bank, and Industrial Securities. Renowned fund-of-funds managers, institutional LPs, industry leaders, and economists from across the investment sector gathered at the event to discuss the "soft power of investment institutions," paving the way for a new chapter in China's investment landscape.

Xu Qing, Managing Partner at Yuanhe Chencun, delivered a compelling speech titled "Development Trends in the New Environment for Fund-of-Funds," highlighting that cultivating and enhancing the core competencies of fund-of-funds managers is the cornerstone for long-term growth. She emphasized the importance of continuously deepening industry insights and expanding networked industry resources to create synergistic effects that empower the broader ecosystem. Xu also pointed out that the distinct characteristics of various funding sources determine the unique positioning of each fund-of-funds, enabling it to build its own specialized "regions," "chains," and "networks" within its respective ecosystem. As a market-oriented fund-of-funds, its most critical value lies in leveraging diverse GP partnerships and strategically allocating capital to foster the integration of multiple industry sectors into a cohesive, resource-driven ecosystem.

Here’s the transcript of guest Xu Qing’s speech at the "2020 China Mother Fund Summit & 2nd Lujiang Venture Capital Forum," carefully edited and condensed by *Mother Fund Weekly*.

Let me start by introducing Yuanhe Chencun. Founded in 2006, we’re among the earliest teams in the market dedicated to professionally managing fund-of-funds investments—and today, we’re the only fund-of-funds that has been entrusted with investments from China’s National Social Security Fund. When we first launched, the China Development Bank and Yuanhe Holdings served as our cornerstone investors, providing unwavering support throughout our initial three fund-of-fund rounds. Looking back, we’ve been pioneers in this industry, weathering its ups and downs over the years. It’s truly inspiring to witness the vibrant ecosystem of fund-of-funds thriving today.

Three core capabilities: Discover, Support, and Accompany

When we raised funds for the master fund in the previous round, we already realized it would be challenging—mainly because we had to explain to others what a master fund is, as well as the value and significance of this unique asset class.

Today, raising additional funds remains challenging, but the situation is already looking different. Now, all institutions have a very clear understanding of fund-of-funds as an asset class—and this is precisely the result of our collective efforts over the past several years. Overall, fund-of-funds have gained significant recognition in the market; however, it’s still tough for market-oriented fund-of-funds to secure funding.

Yuanhe Chencun aims to become a leader in RMB fund-of-funds. Since our establishment in 2006, we’ve consistently strived to inspire our peers with our approach, ultimately positioning ourselves as the most influential and widely recognized team in the market.

Our core capability is to "uncover," "support," and "accompany" outstanding fund management teams—these three words define how we operate as a fund-of-funds.

The first is "discovery"—we aim to identify the newest, most promising "dark horse" teams and support them as they grow and thrive. We’ll help them evolve from a small-scale fund into a more established, high-performing "white horse" fund—while nurturing each other along the way and growing together.

We believe that this mutual "companionship" between LPs and GPs—growing together—is the best kind of symbiotic environment.

Currently, our assets under management stand at just over 20 billion yuan. We’ve invested in 119 funds managed by 71 distinct fund management teams, pioneering the creation of China’s first true community for management teams. This initiative vividly demonstrates our commitment to identifying promising new teams at various stages—providing them with robust support along the way—and staying alongside them even after they’ve established themselves as top-performing "white horse" teams. Through this stable and structured approach, we aim to foster a thriving ecosystem that enables collaborative growth and mutual development across the industry.

The resource network ecosystem is where the core value of the fund-of-funds lies.

Most of you here are professionals working with fund-of-funds—let me share with you our team's basic insights on this topic.

The first is the asset allocation of the master fund.

Everyone knows that PSD’s “Primary, Secondary, and Direct Investment” funds are the core asset-allocation methods used by fund-of-funds. Every fund-of-funds will allocate to these three components, though the specific proportions may vary.

Why are everyone in the market now willing to watch S? That’s because S has a very short cycle, allowing for more realistic returns and results.

D is an effective way to boost returns. As the ultimate pipeline of direct-investment opportunities, the master fund can follow up with secondary investments, fostering a mutually beneficial symbiotic relationship in the process.

We will prioritize Primary as the core component of our master fund allocation, though investments will proceed at a more measured pace. When combining P and D strategies, we need to strike a balance between long-term and short-term benefits, while also ensuring an overall equilibrium between strategic value and financial returns.

As managers, financial returns are what we need to focus on, but we also aim to achieve all our strategic objectives through Primary. Therefore, the optimal allocation ratio for PSD will vary depending on each manager’s unique judgment.

The second point is that funds with different attributes determine the positioning of each underlying fund.

During the fundraising process, we’re currently seeing government fiscal funds and social security pension funds emerge as key sources. Additionally, capital from family wealth offices, industrial investors, publicly listed companies, and university endowment funds is also steadily growing. As a result, the diversity of funding sources is gradually expanding.

Different funding sources determine the manager handling the capital, leading to certain distinctions in asset allocation and the specific activities undertaken. In the market, we often discuss guiding funds and master funds separately—but from an operational and functional perspective, there’s actually no fundamental difference between them. The most critical distinction still lies in their respective funding origins. Ultimately, these differing positions help shape distinct investment ecosystems.

If it’s a government-guided fund, the ultimate outcome is an industry ecosystem centered around the "district" (region), where GPs, local key industries, and related enterprises collaborate closely—resulting in a stronger focus on attracting high-quality investments.

If it’s a fund-of-funds centered around industrial capital, it may foster deeper connections across the entire industry chain, leading to greater focus on related industries, upstream and downstream sectors, as well as strategic investment and M&A opportunities. This is how an ecosystem—specifically a "chain"-like network spanning the industrial value chain—typically emerges within a fund-of-funds driven by industrial capital.

As a market-oriented fund of funds, our long-term goal has always been to build a "network" (an ecosystem)—a comprehensive resource network that connects diverse and multi-faceted industry chains. This is achieved by strategically allocating capital across various types of GPs, enabling them to collaborate and create synergies. For us, the fund of funds, this robust resource ecosystem represents our most critical source of value.

Fund-of-Funds Operations in the New Environment

When it comes to the operation of fund-of-funds in the new environment, I’ll continue sharing insights with you from the four key aspects: fundraising, investment, management, and exit.

First, raise funds.

We can clearly observe from the overall market dynamics that the proportion of state-owned capital is rising at a rapid pace. Just a few years ago, when making GP investments, we often advised that a fund’s state-backed capital should ideally not exceed 50%. Yet today, in the current market, as much as 80% of the capital comes from state-owned sources. For any given fund, having state-owned capital as its core component has already become an undeniable reality—there’s no longer room for debate on this issue. Moreover, on the capital markets today, it’s still primarily governments that hold the most financial resources. Government-led funds and industrial capital remain the most active players, while market-oriented investors—and the capital they control—are relatively scarce. As a result, scenarios where asset allocation takes center stage are particularly limited.

Meanwhile, the Matthew effect is also quite evident in the private equity industry. Top-tier funds on the market tend to find it relatively easier to raise capital. In fact, according to some statistics, just 9% of managers in the industry control more than 80% of the total capital under management.

From a broader fundraising perspective, the core issue remains the shortage of long-term capital, as overall supply is currently insufficient. In terms of long-term allocation, this also requires a gradual upward trajectory—meaning the entire market will still need time and patience to fully recover.

A figure worth noting is that in global alternative markets, long-term investors such as pension funds, insurance companies, sovereign wealth funds, and endowments provide more than 50% of the capital backing high-quality managers. This contrasts significantly with China's current overall funding landscape.

Second, throw.

The first point is the industry portfolio. At its core, we’re leveraging smart and connected technologies as the foundational layer to drive upgrades across both consumer-facing (C-end) and business-facing (B-end) industries. This is currently our central investment focus, as it presents a transformative opportunity for nearly every sector in the market. As a result, this creates an exceptionally promising space for investors, brimming with abundant opportunities waiting to be tapped.

The second point is the STAR Market. The positive developments in the STAR Market are like a much-needed spring breeze, particularly beneficial for weathering the current cold spell across the entire investment industry. However, what we’re now considering is: how will changes in IPO policies impact GP firms’ investment allocation strategies? I believe every fund manager is already thinking about—or should be—this very question: With IPO timelines shrinking, how exactly should GPs adjust their asset allocations, and at which specific stages should they enter and exit investments?

The third point is that stage-based investment strategies are gradually diverging into "early-stage" and "late-stage" approaches. The domestic capital market is increasingly mirroring its U.S. counterpart, with all managers gravitating toward these two ends: first, by focusing deeply on specific industries, and second, as they hone their industry expertise, shifting more aggressively toward early-stage VC rounds like Series A and Pre-A, as well as later-stage M&A opportunities. As a result, securing funding in the B- or C-round stages is becoming progressively tougher—a trend reflective of the broader industry evolution. For professionals managing a fund-of-funds, this calls for a fresh reassessment when allocating assets, as our investment strategies must also evolve dynamically to keep pace with changing market dynamics and environmental shifts.

Fourth, there’s the issue of teams. Back in 2006, when we were setting up our fund-of-funds, we noticed that there were very few RMB-focused teams—most of them were fragmented and lacked strong, cohesive options. At the time, the teams managing RMB capital clearly had distinct characteristics compared to those handling USD funds. However, gradually, after 2012 and 2013, RMB funds began to gain momentum. As a result, the teams managing RMB and USD funds started converging over time, as everyone increasingly sought out the most promising opportunities in the capital markets. This led to a growing alignment in terms of management practices and operational approaches. But at a certain point, firms realized this approach wasn’t sustainable. That’s when teams began to differentiate again, with each group actively pursuing its own untapped "blue ocean" opportunities. This is precisely why we see today that new teams must establish a clear core positioning: within this vast investment landscape, each team needs to identify and carve out the niche that best suits its unique strengths and capabilities. In essence, this becomes the defining "label" that every manager must clearly articulate for their strategy to thrive.

Third, manage.

We’ve invested in 119 funds, and our post-investment management essentially revolves around two key areas. The first is digitalization—something we’ve introduced under the popular concept of a “Digital Middle Platform.” Here, we’ll collect and organize data from both the GPs we’ve invested in and the projects themselves, building an internal network of resources that we’ll then share transparently with our LPs. This forms the foundation of our core digital governance mechanism. The second area focuses on delivering refined, tailored management practices—specifically, risk control that encompasses both process-based oversight and in-depth scrutiny of the actual content of each investment. We adopt a differentiated approach for each GP, recognizing their unique strengths and challenges. Through this meticulous, GP-specific management strategy, we’ve developed a suite of robust methodologies and best practices, enabling us to effectively guide and support each partner according to their individual needs. Ultimately, our goal is to establish a dynamic yet resilient management framework that seamlessly integrates all data and capital into our centralized platform. This will empower Yuanhe Chencun to achieve sustainable, long-term growth while maintaining operational excellence.

Fourth, retreat.

Retiring is one of the most satisfying and exciting developments for us this year. Exiting the market is indeed challenging, but there are still plenty of positive factors at play this year. First, the multi-tiered market structure—especially the implementation of the registration-based system—has had a significant impact on IPOs, sparking heightened activity across the entire primary market. Second, we’re witnessing major industry leaders and capital firms making substantial acquisition deals, as their market valuations remain robust and dynamic. Against this backdrop of aggressive M&A activity, earlier-stage exits are becoming increasingly easier, further boosting overall market liquidity.

Third, as the S market continues to grow, if it becomes robust enough to support the overall market’s liquidity, I believe there’s no longer an issue with funds having longer investment horizons. After all, every segment of the S market will attract buyers, ensuring that each phase delivers its own returns. As a result, the parent fund can comfortably manage its relatively extended timeline. Additionally, we’ve observed that GPs have significantly enhanced their proactive approach to exit management over the past few years. These factors collectively create an exceptionally favorable environment for successful exits.

Finally, no matter how the environment changes, as managers, our core focus should always be on enhancing our own capabilities and competencies—building the kind of strong, adaptable core competitiveness that can thrive in any situation. I’ve consistently told GPs: don’t think of yourselves merely as product managers; instead, see yourselves as true management companies. After all, as managers of a fund-of-funds, our priority is to continuously strengthen our own organizational capabilities. We shouldn’t treat the fund itself as our sole "product," but rather leverage it as the ultimate showcase of our best-in-class service offerings. Ultimately, we aim to foster a harmonious, symbiotic relationship with both GPs and LPs—ensuring that everyone can not only participate in the value creation but also share in the resulting benefits.