Announcements repeatedly contain "basic errors" – disclosure quality issues need to be addressed

Securities Times reporter Zhuo Yong

Recently, Shenzhen Angel Fund of Funds has rolled out a “comprehensively relaxed fund return-to-investment” measure. In reforms to the return-to-investment mechanism of local government guidance funds nationwide, it has fired the first shot. Looking back at the entire industry in 2025, it is not hard to see that across key aspects—return-to-investment conditions, fund terms, tolerance for losses and error, as well as constraints on registration location—government guidance funds are actively adjusting their positioning and shifting their roles. They are gradually moving away from the past operating model centered on investment attraction, and truly returning to their role as platforms for nurturing industries.

A fundamental shift in policy direction and operating model has also brought contraction in scale. The Fund of Funds Research Center recently released the “2025 China Fund of Funds Panorama Report,” showing that as of the end of 2025, across the country 472 fund-of-funds managers had total assets under management of about RMB 4.02 trillion, a year-on-year decrease of 11.92%. The total investment scale for the full year was RMB 560.1 billion, a year-on-year decrease of 15.47%. This is the subtle change that has taken place since the release of the “Guiding Opinions on Promoting High-Quality Development of Government Investment Funds” (hereinafter referred to as “Document No. 1 issued by the General Office of the State Council”). The policy-driven, locally led reform is rewriting the underlying logic of the venture capital and private equity industry.

Relaxing return-to-investment

Guidance funds return to their industrial roots

For many years, “fund investment attraction” has been the core logic behind how local government guidance funds operate: attracting funds and project landing through high-percentage return-to-investment requirements and registration location constraints. But over time, under administrative intervention, problems such as mounting pressure on fund return-to-investment and distortions in investment strategy have become increasingly prominent.

At a symposium on fund of funds held recently in the new era, Li Yutong, General Manager of Nansha Chuangtou, said that under the early “1.0 model” of government guidance funds, market-oriented general partners (GPs) were under intense strain. The government guidance fund’s comprehensive investment-attraction services required of market-oriented fund managers interfered with their normal investment strategies, and sometimes forced them to invest locally in projects that were not as high quality.

This model saw a turning point in 2025. “Document No. 1 issued by the General Office of the State Council” clearly guided the transformation of the functions of guidance funds, and localities quickly followed with adjustments. Shenzhen Angel Fund of Funds took the lead in fully abolishing forced return-to-investment. It replaced upfront hard constraints with downstream incentives: if certain landing results are achieved, managers can enjoy benefit-sharing and buyback preferences; if not met, no additional incentives are provided.

“In the context of a unified national large market, the traditional logic of fund investment attraction is no longer sustainable.” Li Xinjian, General Manager of Shenzhen Angel Fund of Funds, said, “Government guidance funds should return to a ‘guiding’ position, rather than dominating the market. In an economic downturn, government guidance funds can provide phased backstopping, but in the long run, we must leverage social capital, focus on technological innovation and industrial nurturing—not simply chase investment attraction.”

Based on the reporter’s sorting and observation, under the policy guidance of “Document No. 1 issued by the General Office of the State Council,” the return-to-investment rules for local government guidance funds have seen three major changes: first, in some regions, the hard return-to-investment multiples have generally been reduced from around 2x to around 1x; second, some localities no longer use a company’s registration location as the sole judgment standard, but include factors such as industrial cooperation, R&D center landing, and coordination across industrial chains within the statistics; third, restrictions requiring GPs to register locally have been removed, and management teams are selected nationally based on merit.

Li Yutong also revealed that Guangzhou Nansha has reconstructed the cooperation logic of fund of funds. It no longer forces registration, tax payment, or headquarters landing; instead, it focuses on optimizing the allocation of production factors in the Greater Bay Area. “We return the decision-making power to enterprises and the market. Investment attraction has shifted from ‘legal entity landing’ to ‘factor integration.’ Guidance funds and GPs return to a simple and pure partner relationship, with aligned objectives, mutual respect, and clear needs.”

Data from the Fund of Funds Research Center show that there is still a performance gap between government guidance funds and market-oriented fund of funds. As of the end of 2025, government guidance funds had achieved a paid-in capital multiple on cost (MOC) of 1.45, a distribution multiple of paid-in capital (DPI) of 0.78, and an internal rate of return (IRR) of 7.26%, which is slightly lower than market-oriented fund of funds. Industry participants believe that as return-to-investment is loosened and market-oriented capabilities improve, the gap between the two is expected to gradually narrow.

Fund terms are generally extended further Capital for patience takes root

Alongside the return-to-investment reform, another major trend in the 2025 fund-of-funds industry is that fund terms are comprehensively extended. Previously, short-cycle designs of 5–7 years were difficult to match the long-cycle development characteristics of hard-tech fields, pushing the industry toward “long money and long-term investing.”

For example, the national venture capital guidance fund that was just launched last year has a lifespan of 20 years. The Guochuang Guangdong-Hong Kong-Macao Greater Bay Area fund, launched in the Guangdong-Hong Kong-Macao Greater Bay Area, also has a lifespan of 16 years, and it can be extended to 20 years. With 70% of investment going to “early stage” and “small initial” projects, the industry has fully moved away from a short-term investment orientation.

According to statistics from the Fund of Funds Research Center, among newly established guidance funds in 2025, 53% already allow the lifespans of subsidiary funds to be 10 years or more, and some reach 15–20 years. Wang Yunzhan, General Manager of the Futian Guidance Fund in Shenzhen, said: “Now, the lifespan of newly set up funds is basically 10 years or more, because we need to give early-stage technology enterprises enough time to grow.”

Li Xinjian has a deeper understanding of patient capital: “Patient capital is not only changing the fund term from 10 years to 20 years. It is about establishing a circular investment mechanism—rolling the exit proceeds into new investments—to form a steady stream that supports innovation. ” It was also introduced that Shenzhen Angel Fund of Funds recently launched a fund buyback mechanism. Subsidiary funds can buy back the government’s invested shares at cost plus an annualized 2% interest. The repatriated funds are used for a new round of early-stage investment, achieving capital circulation to support multiple rounds of subsidiary funds—more continuous in nature than a single long-term fund.

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

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

First is an upgrade in positioning. Government guidance funds are shifting from investment-attraction platforms to industrial nurturing and ecosystem-building platforms. Taking Shenzhen Angel Fund of Funds as an example, it is reported that over an 8-year period it has committed nearly RMB 8.5 billion, set up 83 angel funds and 17 seed funds, invested in about 1,200 hard-tech projects, and cultivated multiple listed companies and unicorns. The core is to build an early-stage innovation ecosystem.

Second is orchestration through structure. “Document No. 1 issued by the General Office of the State Council” has centralized the power to approve funds at the provincial level, strictly controlling disorderly fund establishment at the county level. This means that the county-level funds that used to be “where hundreds contended” will be coordinated by provincial authorities, thereby avoiding homogenization and fragmented resources, and improving the efficiency of capital use.

Third is loosening error and loss tolerance. From local practice, the loss-tolerance mechanism has begun to move from principle-level statements toward more concrete operational standards, and many localities’ given scales are clearly larger than in the past. In Li Xinjian’s view, venture capital has risks, and returns and risks are symmetrical. As long as it is compliant, fulfills duties, and does not engage in self-serving transfer of benefits, an effective error-tolerance and duty-exemption mechanism 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 a turning point for local fund-of-funds development. Wang Yunzhan believes that currently, externally the world faces a once-in-a-century shift and technological competition; internally, the direction is shifting toward consumption-driven growth and industrial upgrading. Fund of funds must closely follow the “15th Five-Year Plan (2026–2030)” and focus on hard technology and strategic emerging industries—building long-term capital and patient capital to serve new quality productive forces.

(Editor: Dong Pingping ）

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