Trillion-yuan investments await exit: State-owned assets have become the second-largest sellers in S transactions.

The popularity of the S trading market continues to rise.

According to the latest "US VC Secondary Market Observation" released by PitchBook, during the 12 - month period from June 2024 to June 2025, the total transaction volume in the US VC secondary market reached $61.1 billion, surpassing the total IPO exit volume of $58.8 billion in the same period for the first time, marking a significant increase in the importance of the secondary market as an exit channel.

Coincidentally, the Chinese private equity market is also witnessing a wave of transformation centered around "activating existing assets." The Touzhong Jiachuan team conducted a review of the domestic and overseas S markets from 2020 - 2024 in the "Special Research Report on the Chinese Private Equity Secondary Market in 2025."

Data shows that as of April this year, only 24.2% of the projects of funds established in 2014 had achieved exits. This means that over 70% of the invested projects were unable to exit within a maximum of 11 years. For funds established five years ago, over 90% of the projects are still waiting to exit. As time passes, with a large number of funds entering the exit window, S transactions and S funds are gradually moving from the periphery to the center stage.

Moreover, different from the US market, state - owned assets have become the second - largest seller in S transactions. According to data from Touzhong Jiachuan CVSource, in 2020, state - owned assets represented by government agencies, government investment platforms, and guiding funds only accounted for 6.9% (by transaction volume) in the seller's market of S transactions, ranking fourth. However, just two years later, they jumped to become the second - largest seller, and maintained a proportion of around 20% from 2022 to 2024, highlighting the urgent need for state - owned assets to exit.

Correspondingly, domestic S funds have emerged since 2022. Especially since last year, state - owned assets have actively established S funds, indicating that important changes are taking place in the ecosystem and rules of the Chinese S market.

01. The Popularity of S Markets in Both China and the US is Rising

This year, the overseas S fund market can be described as extremely bustling.

Carlyle Group completed the fundraising for its eighth global flagship S fund last week, with a scale of up to $20 billion, approximately 142.7 billion RMB. More than 325 institutional investors from 50 countries and regions around the world invested in this fund. Coincidentally, a few months ago, European private equity giant Ardian completed the fundraising for its ninth secondary fund with a total scale of up to $30 billion, approximately 210 billion RMB. This shows the strong interest of overseas LPs in participating in S transactions.

Moreover, the overseas S transaction market is booming in both fundraising and investment. According to data disclosed by Evercore, the global S transaction volume has grown from $26 billion in 2013 to $160 billion in 2024. Even though there was a decline in some years, the 10 - year CAGR (Compound Annual Growth Rate) still reached 18%. In particular, the growth was strong in the past two years, with the transaction volume in 2024 increasing by 40% year - on - year compared to 2023 (see the figure below).

The US market is even more prominent. The latest "US VC Secondary Market Observation" released by PitchBook last week showed that during the 12 - month period from June 2024 to June 2025, the total transaction volume in the US VC secondary market reached $61.1 billion, surpassing the total IPO exit volume of $58.8 billion in the same period for the first time.

Compared with the rapid development of the overseas market, the domestic market seems to be "all talk and no action."

In 2021, the trading of private equity secondary market fund shares in China reached a small peak (see the figure below). The transaction volume reached 75.16 billion RMB, with 692 transactions. However, since then, the secondary market transactions have shown a downward trend. Although there was a slight recovery last year, the transaction volume of fund share transfers increased by 5.5% year - on - year, reaching 40.5 billion RMB. But it still has not returned to the peak in 2021. Moreover, compared with the overseas market, it is not only far smaller than the US market but even less than one - third of the scale of Carlyle's new fund.

In sharp contrast, there are a large number of assets in the domestic market waiting to be traded and exited.

Funds established in China from 2014 - 2017 have generally entered the exit or extension period. Funds raised during the peak investment period from 2018 - 2021 will mature in a concentrated manner in the next 2 - 3 years, and the exit demand in the market will be intensively released in the next one or two years.

Data statistics from the Touzhong Jiachuan team show that approximately 70% of the enterprises invested by funds established between 2014 - 2017 have not achieved exits (see the figure above). Even if the IPO situation improves and the A - share and Hong Kong stock markets approve more than 300 enterprises to go public each year, it is still difficult to quench the "thirst for exits."

This means that the domestic S trading market is facing a structural contradiction: a large number of existing assets are waiting to exit, but the progress of S transactions is slow.

02. Big Differences between Overseas and Domestic Markets: Who is Buying? Who is Selling?

This structural contradiction is caused by multiple factors, and two factors are the most obvious.

Firstly, compared with the overseas market, China's S transactions started relatively late. In the 1980s, the US Venture Capital Fund Association (VCFA) was established and raised the first S fund, kicking off the US S transactions. After the burst of the Internet bubble in 2001, there was a large demand for fund share transactions, which promoted the gradual maturity of the US S trading market.

In China, S transactions first appeared after 2011, and it wasn't until around 2017 that they became well - known in the industry. At that time, domestic mother funds gradually implemented the P + S+D strategy to improve returns, but it was still in the early stage. So, the domestic S market has only been around for about 15 years at most.

Secondly, there are significant differences in the trading parties between the overseas and domestic markets.

In the overseas market, calculated by transaction volume, pensions, investment institutions, and insurance companies account for about two - thirds of the total transaction volume of sellers. Among them, pensions accounted for 36% in 2023 and 30% in 2024; investment institutions accounted for 17% in 2023 and 28% in 2024; corporate LPs (non - financial) only accounted for 2%.

In the domestic market, corporate LPs (non - financial) have long been the largest seller, accounting for over 30%. During economic fluctuations and industry adjustment cycles, enterprises have the need to divest inefficient assets through S transactions to quickly recover funds and cope with cash - flow pressure.

What's more noteworthy is that state - owned institutions only accounted for 6.9% in 2020. But just two years later, their proportion reached 22.5%, ranking second, and they maintained a proportion of around 20% in 2023 and 2024.

Now, let's look at the buyers.

In the overseas market, S funds have long been the most important buyers, accounting for up to 93% of the transaction volume. However, in the domestic market, mother funds dominate, with their transaction volume maintaining around 40%.

The proportion of domestic S funds was negligible before 2021 and only started to increase after 2022, reaching 2.6% in 2022, 5.3% in 2023, and 4.8% in 2024. That is to say, although S funds seem to be booming, the data shows that it is still a new and niche business.

Since the institutions that want to sell and the institutions that want to buy are different, there are naturally huge differences between the overseas and domestic markets.

03. State - owned Assets Become the Biggest Variable in S Transactions

Let's analyze the variable factors in the domestic market.

As mentioned above, the first major variable is that state - owned assets quickly rose to become the second - largest seller in S transactions after 2022. The second major variable is the rise of S funds from scratch (not absolutely zero) after 2022. These two variables are both inevitable results of the domestic primary market "entering the era of state - owned assets" after 2020.

On the one hand, the pressure of concentrated exits of government - guided funds at maturity and the policy orientation of activating existing assets have promoted state - owned funds to accelerate their exits through S transactions. Last year, an article titled "The Primary Market Fully Enters the Era of State - owned Assets" published by Touzhongwang released relevant data:

"In the past five years (2019 - 2023), state - owned institutions across the country directly invested up to 1.59 trillion RMB, directly investing in about 12,900 enterprises, with a direct investment amount of 1,586.849 billion RMB. If indirect investment is included, state - owned institutions invested in about 20,000 enterprises (after deduplication). This means that one out of every three enterprises was directly invested by state - owned institutions; for every 100 RMB of financing, 25 RMB came directly from state - owned assets." How to achieve a smooth exit for such a large amount of assets is undoubtedly a difficult problem.

On the other hand, with the establishment of trading platforms such as regional share transfer pilots, the S market ecosystem has gradually improved, and state - owned funds have established S funds one after another. According to statistics from Touzhong Jiachuan, as of the end of August this year, state - owned capital in 17 provinces/autonomous regions/municipalities across the country has deployed S funds, and this trend is gradually spreading to the central and western regions and municipal - level state - owned assets.

For example, in January this year, Jiangxi established the 500 - million - yuan Runxin Gantou Relay Fund; in March, Chongqing established the 3.6 - billion - yuan Yuchuang Galaxy Relay Fund; Zhejiang's S fund, the Zhejiang Strategic Emerging Industry Relay Fund, was successfully registered recently, and the first - phase 500 - million - yuan fundraising has been completed; the 5 - billion - yuan Fujian Science and Technology Innovation Relay S Fund has also officially launched the public selection of management institutions.

In addition, S funds established in Henan, Sichuan and other places last year have completed transactions.

For example, Henan's first self - managed S fund, the Henan Strategic Emerging Continuation Fund, established in November last year, invested in the continuation fund of Zhongke Chuangxing in April this year. Its underlying projects include Tangjing Quantum, a developer of semiconductor laser epitaxial wafers, and Xinnanshi, a developer of laser welding and cutting products. Among them, Tangjing Quantum completed the construction of the MOCVD production line and produced samples in just five months, successfully breaking the domestic VCSEL epitaxial wafer's dependence on imports and filling the gap in the optoelectronic chip field.

The Chengdu Science and Technology Innovation Relay Equity Investment Fund managed by the Chengdu Science and Technology Innovation Investment Group has successfully acquired the shares of the Boyuan Xincheng Fund held by New Hope and managed by the local Chengdu VC Boyuan Capital. The Boyuan Xincheng Fund mainly focuses on investments in the aerospace field and has invested in 15 projects, including Chengdu Qihang, Chaohe Puer, Huaxing Dadi, Xingweixun, and Yitong Technology, with nearly half of them being local projects in Chengdu.

These cases show the purposes of state - owned assets in establishing S funds. On the one hand, it is to respond to the national policy of activating existing assets and optimizing incremental assets, systematically solve the liquidity dilemma of venture capital funds, and achieve a virtuous cycle of state - owned capital investment and exit. On the other hand, it is to improve the regional venture capital system by deploying S funds and inject capital impetus into the high - quality development of the regional economy.

04. State - owned Assets' Participation in S Transactions is Moving Forward with Difficulty

However, whether it is becoming the second - largest seller in S transactions or actively establishing S funds, it is not easy for state - owned assets to conduct transactions.

The primary challenge is pricing.

State - owned asset supervision requires resolutely preventing the loss of state - owned assets. Most state - owned LPs tend to use "original investment cost + interest" or "the valuation of the latest round of financing" as the bottom line and are extremely sensitive to discounted transfers. However, market - oriented S funds often require a certain percentage of discounts to cover investment uncertainties and capital costs. This contradiction directly leads to a large number of transactions getting stuck in the initial valuation stage. In practice, the valuation of some enterprises in the latest round of financing has significantly deviated from their actual value. The enterprise's operating conditions may have deteriorated, or it has not received new financing for many years, but still uses the old valuation, resulting in an overestimation of its true value.

The second obstacle is the nature of assets.

Currently, state - owned institutions generally pursue extreme certainty and prefer asset packages containing projects close to IPO or already listed but not yet unlocked, in order to quickly exit and lock in profits. However, in reality, most of the assets in urgent need of exit are blind - pool funds or early - stage funds. These asset packages have dispersed projects, complex due diligence, and long exit cycles, which mismatch the traditional preferences of state - owned assets.

The complexity of the process forms the third hurdle.

State - owned property rights transactions must follow strict approval, evaluation, and listing procedures, which not only take a long time but also impose many restrictions on the selection of trading counterparties, the determination of valuation methods, and the design of transaction structures. Especially when both the buyer and the seller are within the state - owned system, the long decision - making