LPs Pursue Certainty as Institutions "Lock in" Quality Projects Early

Securities Times Reporter Zhuo Yong

“We plan to launch two special funds this year, and we already have promising projects in mind,” Fang Ya said confidently while brewing tea. Fang Ya is the IR director of a VC firm in Shenzhen focused on the healthcare sector. After recent discussions with multiple limited partners (LPs), she clearly feels that compared to blind pool funds, individual and industry LPs are now more willing to invest in single, high-certainty, quality projects.

Currently, popular sectors are increasingly focused on hard technology fields such as artificial intelligence, chips and semiconductors, and robotics, with capital attention becoming more concentrated than ever. Coupled with a more favorable exit environment created by the capital markets for these sectors, the certainty of investment continues to rise. More investors believe that even within consensus sectors, they can achieve excess returns.

Many institutions share this view. Recent exchanges with several venture capital and private equity firms reveal a significant increase in plans to establish special funds this year, indicating a quiet rise of a “special fund craze” in the venture capital circle.

LPs Seek Certainty

Institutions Want to “Grab Projects”

“Now many high-net-worth individuals and industry LPs are less interested in blind pools. Explaining strategies to them is less effective than just presenting a project directly,” Fang Ya noted. Since last year, she has felt that fundraising and decision-making are easier for special funds targeting single or designated projects.

For many small and medium private VC/PE firms, special funds hit the current pain points: first, LPs prefer “visible projects.” After experiencing losses in equity investments and the volatility of virtual currencies, high-net-worth individuals are wary of blind pools that raise money first and find projects later. They prefer to invest in special funds that clearly specify where the money is going.

“Investing in blind pool funds depends heavily on trust. Generally, high-net-worth LPs trust top comprehensive funds more, but for smaller VC firms, having high-quality, certain projects is key to attracting LPs,” said Wang Jun, Managing Director of Hong Zhao Fund.

Wen Xiaoping, co-founder of Huaxia Hengtian, told reporters that the company always adheres to a model of first locking in quality projects before launching a dedicated fundraising. “Our LPs are mainly industrial entrepreneurs who are deeply involved in their industries, with sharp insights. They highly recognize this ‘point-to-point’ special fund model.”

Second, fast decision-making is crucial to seize hot projects. Wang Jun explained that as a private investment firm, their investment decision process is more flexible than state-owned enterprises. “Our core LPs participate in decision-making, listening to projects and discussing plans together. Once everyone agrees, the decision is made quickly.”

In fact, the current recognition of special funds is based on a practical logic: in the short window of AI large models, commercial space, and robotics projects, traditional blind pool funds often face the problem of “funds arriving but shares gone” due to longer fundraising and registration cycles. Special funds can lock in shares early and precisely position themselves.

“This year, we plan to focus on commercial space. Before the Spring Festival, we held roadshows for all LPs, explaining our investment areas and strategic layout to gain their recognition of the sector’s value. We also clarified that we only look at top-tier projects, increasing LP acceptance. Before projects come in, LPs will be asked to make upfront payments,” Wang Jun said.

The reporter noted that as early as last year’s hot Hong Kong stock market, investors predicted a wave of “hotness” for special funds. Veteran investor Li Gangqiang previously stated that the core logic behind this “hot wave” includes four points: first, Hong Kong stocks can serve as a backstop for IPOs, creating expectations that companies can at least list in Hong Kong; second, stock prices of Hong Kong-listed companies during lock-up periods remain decent, creating market illusions and high valuation benchmarks; third, the Sci-Tech Innovation Board opens a window for future tech companies, offering new listing opportunities; fourth, leading tech companies in fields like GPU and robotics demonstrate profit potential, fueling strong market expectations.

Good Projects

The Key to Success or Failure of Special Funds

The logic seems simple, but establishing a special fund quickly and accurately involves many practical details.

According to the reporter’s understanding, the typical size of industry mainstream special funds is between 100 million and 200 million yuan, which is manageable for fundraising and meets most project investment needs. However, even small funds need to balance the pace of fund registration and project acquisition. Several interviewed institutions emphasized that regulatory approval for special funds remains quite strict.

Specifically, the agreement must clearly specify that only one specific project can be invested in, all funds must be in the account, and proof of payment and transaction records must be provided to the association to complete registration. The entire process takes at least three weeks. Since high-quality projects are always highly contested, without prior preparation, funds may miss the investment window.

The mainstream approach is to plan ahead and reserve resources. Most VC firms annually plan one or two special funds, initiated by core investors, with pre-completed structures and preparations, ready for project needs. Wen Xiaoping further explained that Huaxia Hengtian has developed a dual-warehouse system—deep coordination between a project database and an investor database. The company continuously adds quality enterprises to the project database and maintains long-term engagement. On the funding side, some investors have become shareholders, acting as LPs and co-builders of the company’s growth. When a high-quality, hot project appears, they can act quickly without starting from scratch, securing opportunities efficiently.

In today’s market environment, securing high-quality project shares is more critical than fund registration. Currently, special funds mainly focus on hot hard-tech sectors like AI, semiconductors, commercial space, and humanoid robots, with leading companies’ investment shares becoming scarce industry-wide. “Good projects leave no hesitation, especially in the GPU sector where the investment window is extremely short,” Wen Xiaoping lamented. “The times are changing rapidly, and investment mechanisms must evolve accordingly, or else we risk missing major opportunities.”

Project Differentiation and Risks

Compliance Risks

The resurgence of special funds has not only prompted frequent moves by VC institutions but also reactivated long-dormant high-net-worth individuals and industry LPs. “Individual LPs are returning; we’ve contacted several with strong capital, who previously suffered losses in virtual currency investments and are now turning back to equity investments,” Fang Ya said. Especially those who made money in the primary market are more willing to re-enter, which is also related to the current investment heat in hard tech sectors.

However, behind high enthusiasm among LPs, risks in some special funds cannot be ignored. “The head effect in humanoid robots is very strong; most mid-tier companies may not be very optimistic about future capitalization,” said an AI startup founder. The rapid technological iteration in hard tech means many new technologies launched by companies could be quickly eliminated from the market.

It’s also important to note that not all “star projects” smoothly reach the listing stage. A senior investor revealed that many special funds targeting star projects claim that once the current round of funding is complete, they will go public, but actual progress is often uncertain.

Besides project risks, LPs should also be aware of compliance risks. Some special funds are set up as limited partnerships but have not completed registration with the Asset Management Association. “If investment disputes arise later, unregistered funds could harm LPs’ rights,” Fang Ya warned. High-net-worth individuals chasing after special funds and star projects should also pay attention to these hidden compliance risks and avoid being blinded by short-term hype.