the so-called "times make heroes" and the sudden emergence of RMB funds are inseparable from the increasingly perfect equity investment market in China. The author believes that there are the following opportunities for the development of RMB funds:
1. Perfection of legal policies for equity investment
After years of continuous exploration, China has initially formed a legal framework for RMB funds, and local and foreign investment institutions basically have laws to follow in the process of establishing and raising RMB funds. In recent years, the Regulations on the Administration of Foreign-invested Venture Capital Enterprises, the Interim Measures for the Administration of Venture Capital Enterprises, the new version of the Company Law, the Securities Law and the Partnership Enterprise Law have come into effect one after another. With the improvement of the legal system, there are basically no legal obstacles to the establishment and investment of RMB funds in China.
For foreign investors, there are no laws, administrative or foreign exchange regulations that make them too embarrassed, which restrict overseas venture capital funds from setting up RMB funds, investing in domestic projects and listing their projects in the Mainland. The mainland capital market has become an optional exit route from both the interests and policies. Compared with foreign currency funds, RMB investment can simplify the approval process in some cases, help avoid bureaucratic obstacles, speed up the investment process, and enable foreign investors to gain the advantage of quick action that only domestic funds can enjoy. On the other hand, RMB funds will enable investors to convert overseas investments into RMB more quickly. This also makes RMB funds a natural choice for many foreign venture capitalists.
II. Broadening the financing channels of RMB funds
The rapid development of RMB funds is inseparable from the sufficient reserve resources of fundraising targets. With the development of equity investment in China, more and more units and individuals are eager to share the benefits brought by equity fund investment and are willing to take risks for it. Besides wealthy individuals, private enterprises and social organizations, there are also many state-owned assets in this group with willingness to invest, and state-owned enterprises and government guidance funds are interested in participating.
in p>28, many kinds of financial capital were allowed to set foot in the field of equity investment, which greatly broadened the sources of funds for venture capital and private equity funds. In March 28, the CSRC decided to moderately expand the pilot scope of direct investment by brokers, and eight qualified securities companies, including Huatai and Guoxin, were successively allowed to carry out direct investment business. In April 28, the National Social Security Fund was allowed to independently invest in industrial funds approved by the National Development and Reform Commission and market-oriented equity investment funds filed with the National Development and Reform Commission. In June, 28, China Banking Regulatory Commission (CBRC) solicited opinions on the Operational Guidelines for Private Equity Investment Trust Business of Trust Companies, and prepared to standardize and guide the private equity investment trust business that has been launched. In October 28, "Guiding Opinions on Standardizing the Establishment and Operation of Venture Capital Guidance Funds" was issued, which clearly regulated the establishment of venture capital guidance funds in local areas; In November 28, insurance institutions obtained the approval of the State Council to invest in the equity of unlisted enterprises, and will steadily carry out the pilot project of insurance funds investing in the equity of financial enterprises and other high-quality enterprises; In December, 28, China Banking Regulatory Commission issued the Guidelines on Risk Management of M&A Loans for Commercial Banks, which allowed qualified commercial banks to start M&A loans, making it possible for commercial banks' funds to enter the field of equity investment.
Another important source of funds for RMB funds is the Venture Capital Guidance Fund. Since the outbreak of the international financial crisis, local governments have been enthusiastic about setting up the Venture Capital Guidance Fund, which has become an important driving force for the rapid development of RMB funds. According to incomplete statistics, at present, more than 3 cities and above have set up venture capital guidance funds, with a total scale of more than 1 billion yuan. With the outbreak of the international financial crisis and the difficulty in raising funds in the equity investment market, the advantages of government venture capital guidance funds began to become obvious. Venture capital institutions can also get high-quality projects and related supporting policy support while introducing funds. Under the uncertain situation, these resources are more important to venture capital institutions, which can relatively reduce the risk of investment. Therefore, venture capital guidance funds are extremely attractive to venture capital institutions.
III. Attractiveness of RMB fund investment exit channel
In the past, venture capital institutions that were active in China were faced with a development environment of "two ends are outside", that is, overseas fundraising, through investing in overseas holding companies of China companies, and realizing overseas listing exit. However, with the introduction of restrictive policies and rising listing costs, overseas listing is becoming more and more difficult, while domestic and foreign investment institutions are gradually optimistic about exiting through the domestic capital market, and the attraction of domestic exit is obvious.
After the baptism of the current financial crisis, China A-share market has become one of the most attractive markets in the world. Both local and foreign investment institutions have expressed their optimism about the development prospects of China A-share market, especially the Growth Enterprise Market. With the establishment of GEM in Shenzhen Stock Exchange, the exit channels of RMB fund investment are more perfect, which undoubtedly accelerates the enthusiasm of Chinese or foreign investors to set up RMB funds.
from the perspective of the invested enterprises, compared with many years ago, most private enterprises chose to go public overseas. After years of development, all aspects of our laws are relatively perfect, and private entrepreneurs have no particular preference for overseas listing. In contrast, the advantages of China's capital market, such as low listing cost, high P/E ratio, low risk and cultural and legal localization, make more and more private enterprises take domestic listing as one of the important choices for their company's strategic development.
among the many elements in the construction of multi-level capital market system in China, other types of capital markets are also progressing in an orderly manner, such as OTC, the proxy equity transfer system known as the "New Third Board", and the measures taken by property rights exchanges all over the country to support VC/PE investment activities. It is believed that with the maturity of China's multi-level capital market and the improvement of exit channels, more and more domestic funds will be stimulated to integrate into the VC/PE market in China, which will trigger a new round of investment upsurge of RMB funds. However, while RMB funds are developing rapidly, it cannot be denied that RMB funds have their own problems, and the future prospects of RMB funds are not only facing opportunities but also challenges.
Fourth, the financing channels of RMB funds should be further broadened
According to the types of funds, RMB funds can be divided into two types: pure RMB funds and foreign funds. Both of these funds have problems that need to be improved in the structure of raised funds.
pure RMB funds, that is, investors are all from domestic institutions or individuals. This fund-raising structure is more feasible and common in the current situation of strict control over foreign exchange capital in China. The sources of RMB funds are mainly social security funds, China Development Bank, industrial guidance funds established by local governments and some enterprises. However, commercial banks, insurance companies and other financial institutions and local social security funds have not been approved to invest in market-oriented RMB funds, so qualified mature LP is still very limited.
Joint venture funds, that is, funds include not only RMB funds, but also some foreign currency funds. This fundraising structure is mainly caused by the participation of some foreign venture capital institutions. Foreign currency funds mainly come from overseas funds or offshore funds managed by foreign venture capital. Due to the fact that foreign exchange investment funds need to be examined and approved by projects, it is difficult to obtain approval for investing in domestic listed companies, and the restrictions on industry access, the entry of foreign exchange funds into domestic RMB funds is very limited. It is reported that the Shanghai Municipal Government has submitted an application to the State Administration of Foreign Exchange, proposing to lift the restrictions on the use of overseas funds registered in Pudong New Area, so as to facilitate overseas private equity investment companies to raise RMB funds and invest in China. If the application can be approved, it will undoubtedly greatly stimulate the influx of overseas funds into the domestic RMB fund market, and the source of fund-raising will certainly be improved.
5. China lacks maturity and suitable LP
The healthy development of RMB funds requires the mutual cooperation and trust of excellent managers (GP) and mature investors (LP) in the market.
At present, some GPs in China operate RMB funds by relying on the extensive characteristics and advantages of abundant capital and deep background, and some GPs are transformed from securities firms or investment banks. Most of them have no direct investment experience, lack of successful cases or traceable records to prove their ability, cannot gain the full trust of LP, and are short of relevant professional talents.
among foreign funds, LP is mainly composed of pension funds, university funds and special investment funds. At present, most LP sources in China are private enterprises and individuals, but LP in China is not used to giving money to professionals for management, and has a desire to intervene or participate in investment decision-making and management, which is likely to affect the professionalism of GP management. Some LPs come from state-owned enterprises, so it is particularly important to consider the preservation and appreciation of state-owned capital, which puts pressure on GP's investment decision-making and will inevitably affect its investment independence. At the same time, due to the rapid development of China's macro-economy, domestic LP's expectations for investment cycle and return on investment have also increased, and they hope to invest in projects with quick profits and high returns, thus interfering with GP's investment decisions too much.
Equity investment is a professional activity, especially venture capital requires professional vision and services. For the main participants of RMB funds, venture capital institutions in China and investors in China, LP should give GP time and space to generate benefits through GP's specialization, and both GP and LP should find a balance between efficiency and supervision. Only in this way can domestic RMB funds grow and develop.