Reinvestment easing returns to the core of the industry. Local government guidance funds accelerate transformation.

Securities Times reporter Zhuo Yong

Recently, the Shenzhen angel mother fund rolled out a “fully relaxing return-to-investment” initiative. In the reform of return-to-investment mechanisms of local government guidance funds across the country, it was the first to fire the “opening shot.” Looking back at the entire industry in 2025, it is not difficult to see that, from key areas such as return-to-investment requirements, fund tenors, loss-and-risk tolerance, to restrictions on the place of registration, government guidance funds are proactively adjusting their positioning and transforming their roles, gradually bidding farewell to the past operating model centered on attracting investment, and truly returning to serve as an industrial cultivation platform.

Fundamental adjustments to policy guidance and operating models have also brought about a contraction in scale. The Mother Fund Research Center recently released the “2025 China Mother Fund Panorama Report,” which shows that by the end of 2025, across the country, 472 mother funds had total assets under management of approximately RMB 4.02 trillion, down 11.92% year over year. The total investment scale for the full year was RMB 560.1 billion, down 15.47% year over year. This reflects subtle, incremental changes in the industry that occurred after the issuance of the “Guiding Opinions on Promoting the High-Quality Development of Government Investment Funds” (hereinafter referred to as the “State Council General Office Document No. 1,” or “Guo Ban Yi Hao”); this reform driven by policy and led by localities is rewriting the underlying logic of the venture capital industry.

Return-to-Investment Loosening

Guidance funds return to their industrial roots

For many years, “fund招商” has been the core logic of local government guidance fund operations: attracting funds and project landing through high return-to-investment requirements and restrictions tied to the place of registration. But over time, under administrative intervention, problems such as mounting return-to-investment pressure and distorted investment strategies have become increasingly prominent.

At a recent symposium on mother funds in the new era, Li Yutong, General Manager of Nansha Chuangtou Investment, said that under the 1.0 model of early government guidance funds, market-oriented ordinary general partners (GPs) were severely burdened—government guidance funds’ all-round招商 services for market-oriented fund managers interfered with their normal investment strategies, and even forced them to invest locally in some projects that were not so high quality.

This model reached a turning point in 2025. “Guo Ban Yi Hao” clearly stated that guidance fund functions should be transformed. All regions quickly followed with adjustments. Shenzhen angel mother fund took the lead in comprehensively canceling mandatory return-to-investment, changing rigid upfront constraints into downstream incentives: if certain landing results are achieved, they may enjoy concessionary profit-sharing and buyback preferences; if targets are not met, they do not receive additional incentives.

“In the context of a unified national large market, the traditional fund招商 logic can no longer be sustained,” said Li Xinjiang, General Manager of Shenzhen angel mother fund. “Government guidance funds should return to their ‘guidance’ positioning, rather than dominating the market. In an economic downturn phase, government guidance funds can provide phased downside support, but in the long run, they must mobilize social capital and focus on technological innovation and industrial cultivation—not simply on investment attraction.”

According to the reporter’s sorting and observations, under the policy guidance of “Guo Ban Yi Hao,” local government guidance funds’ return-to-investment rules have seen three major changes: first, in some regions, the hard return-to-investment multipliers have generally been reduced from around 2x to around 1x; second, some localities no longer take corporate registered location as the sole judgment criterion, but include factors such as industrial cooperation, the landing of R&D centers, and coordination across industrial chains in the统计 scope; third, the local registration restrictions for GPs have been removed, and managers are selected nationwide on a best-eligible basis.

Li Yutong also revealed that Guangzhou Nansha has restructured the cooperation logic for mother funds: it no longer requires mandatory registration, tax payment, or headquarters landing; instead, it focuses on optimizing the allocation of production factors in the Greater Bay Area. “We give choice back to enterprises and the market.招商 has shifted from ‘legal-entity landing’ to ‘factor integration.’ Guidance funds and GPs return to simple and pure partnership relationships, with aligned objectives, mutual respect, and clear needs.”

Data from the Mother Fund Research Center shows that there is still a gap in performance between government guidance funds and market-oriented mother funds. As of the end of 2025, government guidance funds had achieved a multiple on capital called and distributed profits (MOC) of 1.45, a distribution multiple on paid-in capital (DPI) of 0.78, and an internal rate of return (IRR) of 7.26%, which is slightly lower than market-oriented mother funds. Industry insiders believe that as return-to-investment loosening takes effect and market-oriented capabilities improve, the gap between the two is likely to narrow gradually.

Fund tenors generally extended Further patience capital takes root

Alongside the return-to-investment reform, another major trend in the 2025 mother fund industry is that fund tenors have been comprehensively lengthened. In the past, short-cycle designs of 5–7 years could not match the characteristic of long-cycle development in hard-technology fields, forcing the industry toward “long money and long-term investment.”

For example, the national venture capital guidance fund that just landed last year has a fund life of as long as 20 years; the Guochuang Yuegangao Bay Area fund (Guo Chuang Yuegangao) landing in the Greater Bay Area has a fund life of 16 years, and it can be extended to 20 years. With 70% of investments made “early and small,” the industry has completely moved away from a short-term, quick-in-quick-out investment orientation.

According to statistics from the Mother Fund Research Center, among newly established guidance funds in 2025, 53% already allow the investee funds’ tenors to be 10 years or more, and some reach 15–20 years. Wang Yunshan, General Manager of the Shenzhen Futian guidance fund, said: “Now, the fund tenor for newly set up funds is basically 10 years or more—because we need to give early-stage technology enterprises enough time to grow.”

Li Xinjiang has a deeper understanding of patient capital: “Patient capital is not only changing fund tenors from 10 years to 20 years; it is about establishing a cyclic investment mechanism, so that exit proceeds are rolled into new investments, forming a continuous flow of funds that supports innovation.” It is reported that the Shenzhen angel mother fund has also recently launched a fund buyback mechanism. Investee funds can buy back the government’s contributed share at cost plus an annualized 2% interest. The cash returned will be used for a new round of early-stage investment, thereby enabling the circulation of funds to support multiple rounds of investee funds—making it more sustainable than a single long-tenor fund.

Three major changes in the “playbook” of local guidance funds

Under policy guidance and market pressure, local guidance fund operating models have undergone a systemic shift, showing three key features:

First, an upgrade in positioning. Government guidance funds are shifting from being招商 platforms to platforms for industrial cultivation and ecosystem building. Taking Shenzhen angel mother fund as an example, according to information, over 8 years it has cumulatively contributed nearly RMB 8.5 billion, set up 83 angel funds and 17 seed funds, invested in about 1,200 hard-technology projects, and cultivated multiple listed companies and unicorns. The core is to build an early-stage innovation ecosystem.

Second, coordinated structuring. “Guo Ban Yi Hao” has centralized approval authority for funds up to the provincial level, strictly preventing disorderly fund establishment at the county level. This means that the previously “a hundred schools contend” county-level funds will be coordinated by the province, thereby avoiding homogenization and dispersed resources, and improving capital utilization efficiency.

Third, loosening tolerance. Based on local practices, loss-and-failure tolerance mechanisms have begun to move from principle statements toward more specific operational standards, and many localities have set thresholds that are clearly larger than in the past. In Li Xinjiang’s view, venture capital has risks, and returns and risks are symmetrical. As long as compliance and diligence are exercised, with no self-interested transfer of benefits, effective tolerance-for-error and protection-from-dutiful-mistakes mechanisms should be established, so that state-owned capital dares to invest early and tolerates failures.

From continuous institutional changes to optimization of industry structure, 2026 may become the watershed for the development of local mother funds. Wang Yunshan believes that, currently, externally, the world faces changes unseen in a century and technology competition; internally, the focus is shifting toward consumption-driven growth and industrial upgrading. Mother funds must keep pace with the “15th Five-Year Plan” (the 15th Five-Year Plan) and focus on hard technology and strategic emerging industries, serving as long-term capital and patient capital, and supporting new-quality productive forces.

(Editor: Liu Chang)

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