Shanghai takes action: State-owned funds shift from "able to invest" to "daring to lead investments and capable of exiting"

Shanghai is attempting to reshape the role of state-owned asset funds.

On the 8th, the Shanghai State-owned Assets Supervision and Administration Commission issued the "Guiding Opinions on Further Promoting the High-quality Development of Private Equity Investment Funds of Supervised Enterprises" (hereinafter referred to as the "Guiding Opinions"), clearly putting forward three orientations of marketization, legalization, and specialization. The focus of the policy guidance lies on three major links: the leading investment pricing ability, post-investment empowerment, and the exit mechanism.

From the perspective of policy evolution, the "Guiding Opinions" this time are not issued in isolation. Instead, they are a supplement to Shanghai's state-owned venture capital system in recent years. The core goal is to transform state-owned asset funds from low-volatility capital oriented towards compliance to functional patient capital serving the science and innovation industry.

Upgrading the Entire Process of Fundraising, Investment, Management, and Exit

Under the guidance of the three principles of marketization, legalization, and specialization, the "Guiding Opinions" have made systematic directional adjustments to the entire process of fundraising, investment, management, and exit of state-owned asset funds in equity investment. Many measures are precise responses to the pain points in the current private equity investment market.

Among them, in the "investment" link, the "Guiding Opinions" clearly propose to improve the leading investment pricing ability of state-owned asset funds, directly targeting the financing bottleneck that it is difficult to find a leading investor for early-stage projects.

Previously, through research and interviews by the "Star Market Daily", it was learned that there was a situation in the primary market where "there are investors, but no leading investors." And this phenomenon of the lack of leading investors is closely related to the continuous increase in the proportion of state-owned funds in the primary market.

Many project and investment professionals once told reporters that against the background of increasing valuation uncertainty and stricter responsibility constraints, state-owned funds in investment decisions emphasize compliance and risk explainability more. Therefore, state-owned asset funds are more inclined to participate as follow-on investors in the early rounds and are reluctant to assume the responsibility of leading investment pricing.

It can be seen that the "Guiding Opinions" attempt to relieve the constraints that prevent state-owned asset funds from leading investments at the institutional level.

In terms of investment decision-making and valuation mechanisms, the "Guiding Opinions" not only clarify the orientation of leading investment pricing but also further refine the pricing basis. It requires making judgments based on multi-dimensional indicators such as team ability, R & D investment intensity, technological originality and breakthrough, patent quality, and industrial chain status according to different development stages of technology companies, so as to improve the explainability of early-stage project valuations and the sufficiency of decision-making basis.

At the same time, in terms of the investment decision-making mechanism, the "Guiding Opinions" also make optimized arrangements, proposing to participate in fund decision-making by appointing observers or advisory committees. While ensuring the right to know and supervision of state-owned assets, it avoids excessive intervention in specific investment judgments and reserves space for market-oriented institutions to exert their professional capabilities.

In the view of the industry, the core goal of this set of institutional designs around the "investment" link is to achieve a balance between decentralization and risk control. While reducing the decision-making pressure of state-owned asset funds participating in early-stage investments, it also provides guidance for the improvement of their pricing and judgment abilities.

In addition to the "investment" link, the "Guiding Opinions" also make multiple optimizations in the fund establishment and operation process, showing an orientation of improving the operation efficiency of state-owned asset funds as a whole.

Specifically, the "Guiding Opinions" propose to implement ex-post filing management for funds initiated but not funded by supervised enterprises; for single-target special funds within the scope of the main business, the requirements for the subscribed capital contribution ratio can be moderately relaxed, and the internal establishment procedures can be simplified. At the same time, in terms of fund management and cooperation mechanisms, supervised enterprises can also set different conditions such as the capital contribution ratio and hurdle rate for excellent fund managers according to the actual situation, making the way for state-owned assets to participate in equity investment more flexible and closer to market-oriented operation practices.

At the exit end, the "Guiding Opinions" place more importance on the construction of S funds, merger and acquisition funds, and the share transfer market. It clearly proposes to encourage the strengthening of the establishment of S funds and merger and acquisition funds, and at the same time promote the improvement of the fund share valuation system in the regional equity market. When exiting, the price adjustment range can be reasonably determined based on the valuation reports issued by third-party institutions based on factors such as project conditions, comparable market cases, and asset liquidity, so as to improve the exit efficiency.

The core of this series of arrangements is to broaden the exit path of state-owned asset funds and relieve the problem of insufficient liquidity of existing assets, thereby improving the capital circulation efficiency and investment willingness. In the fundraising, investment, management, and exit chain, the improvement of the exit mechanism largely determines whether state-owned asset funds can shift from passive holding to active capital circulation.

In the post-investment link, the "Guiding Opinions" propose to improve the post-investment empowerment system and promote the formation of a service mechanism covering industry, technology, and resource synergy. This arrangement once again emphasizes the functional positioning of state-owned asset funds in supporting the development of science and technology and industry, promoting their transformation from a single capital provider to an investment entity with both capital and industrial service capabilities.

Completing the System of State-owned Asset Funds from Rules to Capabilities

It is worth noting that the "Guiding Opinions" this time are not issued in isolation. Before this, Shanghai has successively established the basic institutional framework for state-owned venture capital.

As early as 2024, Shanghai issued the "Administrative Measures for the Private Equity Investment Fund Business of Enterprises Supervised by the SASAC" and the "Interim Measures for Assessment, Evaluation, and Due Diligence Exemption". The former clarifies the entire process specifications of fundraising, investment, management, and exit, and the latter guides early, small, and hard technology investments through differentiated assessment and due diligence exemption mechanisms.

On this basis, the issuance of the "Guiding Opinions" is more like a supplement to the existing institutional system, shifting from mainly rule-based constraints to emphasizing both capacity building and ecological improvement.

For example, the previous system emphasized "hard constraints" such as pre-argumentation, filing and approval, and risk isolation, while the new policy introduces ex-post filing and authorization and decentralization mechanisms in multiple links to optimize the decision-making efficiency of state-owned asset funds.

Regarding asset evaluation, which has long been a key constraint for the exit of state-owned asset funds, previous policy documents have allowed the use of valuation methods to replace evaluation in specific scenarios, but there are still problems with implementation boundaries and operational complexity. The "Guiding Opinions" further refine it to specific scenarios in fund operation, including non-proportional capital increase and decrease during the fundraising period, passive shareholding increase, etc., allowing the price to be determined according to the partnership agreement. In essence, it aims to return part of the pricing power to the market mechanism.

In addition, on the basis of the existing due diligence exemption in the previous policy, the new policy further strengthens market-oriented incentive mechanisms such as follow-on investment and profit sharing, and emphasizes assessment based on portfolio performance and long-term cycles.

For state-owned asset platforms, the issuance of the "Guiding Opinions" on the one hand realizes the optimization of the operation process and the relaxation of the management mechanism, and the scope of action of state-owned asset funds in the primary market tends to expand; but at the same time, the clear proposal of roles and capabilities such as "leading investment pricing" and "post-investment empowerment" also means that state-owned asset funds need to complete the upgrade of professional capabilities and improve the corresponding investment research and judgment capabilities.

For market-oriented investment entities, the "Guiding Opinions" may help improve the expectations of cooperation with state-owned assets. First, at the fundraising end, the terms such as the state-owned capital contribution ratio, hurdle rate, and management fee payment are more flexible and further match the investment progress, which is more in line with industry practices as a whole; the encouragement of "leading investment pricing" at the investment end helps to provide a price anchor for early-stage projects and relieve the structural problem that funds are only willing to follow investments. At the exit end, if the share transfer platform can form a more transparent valuation and matching mechanism, it will also improve the predictability of the exit path for LPs and GPs.

However, it should also be noted that the constraints on GPs in the "Guiding Opinions" are also being refined synchronously. The binding of management fees to the investment progress, the improvement of post-investment empowerment requirements, and the stricter supervision of integrity risks and interest transfer have all raised the professional and compliance thresholds of the industry.

If in the past few years, the policies related to state-owned venture capital mainly solved the problem of "whether to invest", then the "Guiding Opinions" this time further point to how to invest more efficiently and in line with market-oriented logic.

In terms of actual effects, whether state-owned funds can more actively participate in early-stage technology investments, form a price anchor in the market, and establish a smoother exit channel will be the key to measuring the effectiveness of this round of adjustment. This will also determine whether state-owned asset funds can transform from a compliance-oriented capital form to "patient capital" that truly serves scientific and technological progress and industrial development.

This article is from the WeChat official account "Venture Capital Daily". Author: Ao Jin. Republished by 36Kr with authorization.