State-owned LPs are on edge.

Recently, the Audit Department of Hebei Province released the audit results of the provincial budget implementation and other fiscal revenues and expenditures in 2024, pointing out some problems in the management of government investment funds, including: scattered investments of some government investment funds, long - term idling of funds, and deviation from investment targets, etc.

Coincidentally, the Audit Department of Hubei Province pointed out that 14 funds had been idle for a long time, involving an amount of 2.885 billion yuan. Audit reports from places such as Fujian and Jiangxi also pointed out deficiencies such as unclear positioning of government investment funds and idle funds.

To some extent, this also reflects the real situation in the primary market at present.

Local audits are out, and government investment funds are under scrutiny

Let's look at the specific work report.

On July 28th, at the 16th meeting of the Standing Committee of the 14th People's Congress of Hebei Province, the Audit Department of Hebei Province delivered the "Audit Work Report on the Implementation of the Provincial Budget and Other Fiscal Revenues and Expenditures of the People's Government of Hebei Province in 2024". The report pointed out issues regarding "the management of government investment funds", which attracted the attention of the primary market:

First, the operation of funds is not standardized enough . Some government investment funds have been in operation for many years, but the investment fields are still not clear, and the investments are scattered; 7 funds, such as the Jicai Industrial Guidance Equity Investment Fund and the Blue Sky Equity Investment Fund, have not specified the fund's duration or have not established subsidiary funds in a timely manner.

Second, some government investment funds have been idle for a long time, and performance management still needs to be strengthened. The idle ratio of 3 provincial - level government investment funds is relatively high. For example, in 2019, the finance contributed 50 million yuan to establish a subsidiary fund for guiding the transformation of scientific and technological achievements. As of the end of 2024, this fund was still idle in the relevant unit without generating any benefits.

Third, the operational management ability of funds needs to be improved. The investment of the subsidiary fund for guiding science and technology investment deviated from the target by 143 million yuan; individual fund managers did not conduct due diligence investigations properly, and the government investment fund management institutions and subsidiary funds were not registered with the Asset Management Association of China.

In summary, some government investment funds in Hebei Province are facing problems such as scattered investment fields, slow investment progress, and even deviation from investment directions. Similar challenges also face many local government investment funds.

For example, during the audit process, Hubei Province found two major situations regarding government - guided funds and state - owned enterprise investment funds:

1. There is a gap in implementing policies to promote industrial transformation and upgrading and serve innovation and entrepreneurship. 12 funds did not focus on serving the decision - making and deployment of the provincial Party committee and the provincial government. 16 funds did not support the development of provincial industries as agreed in the agreement. The investment proportion of 3 angel funds in seed - stage and start - up enterprises did not meet the policy target of 60%.

2. The operation and management of some funds are non - compliant. 14 funds invested 1.269 billion yuan in projects in the form of equity in name but debt in substance; due to incomplete preliminary procedures and other reasons, 14 funds had been idle for a long time, involving an amount of 2.885 billion yuan. 27 funds or fund managers were not registered; one subsidiary fund continued to exist without going through the extension procedures after its expiration.

The audit report of Jiangxi stated that the investment directions of some funds' investment projects did not fully match the fund's target positioning, and there was insufficient support for the development of key provincial industries. In Fujian, the audit report pointed out that the effect of fund integration needs to be strengthened. The integrated provincial government investment funds have not started investing yet, resulting in idle funds.

Actually, changes run through every aspect of the primary market. Many investment institutions told us this year about the current challenges - they can't invest the money in their accounts for a long time.

To roughly summarize the reasons: The limited funds in the market are all concentrated in the same tracks. There are many projects, but there are very few projects that are really worth investing in and can be invested in. Especially for GPs that have received local funds, because they need to consider the repatriation investment, the hidden risks of blind investment are high, so they have to be more cautious, which makes it even more difficult to find projects.

The pressure also falls on LPs. "Government LPs now have requirements for GPs, including the efficiency of fund use. They care whether the funds can be really invested in innovative projects rather than remaining in the funds," said the managing partner of a state - owned mother fund in the Pearl River Delta. Currently, almost 90% of government LPs' demand is to invest as soon as possible, and some have even set assessment targets such as "how much must be invested this year".

A new chapter for government investment funds

As is well - known, government investment funds have become an important force in the domestic venture capital industry, and government - guided funds are the largest source of capital in the current primary market. Data from the Zero2IPO Research Center shows that as of the end of 2024, a total of 2,178 government - guided funds had been established in China, with a total target scale of about 12.84 trillion yuan and a subscribed scale of about 7.70 trillion yuan.

Government - guided funds have become an important support for the Chinese equity investment market. As of the first half of 2025, among the 11,930 existing equity investment fund managers, those with state - owned backgrounds accounted for 34.5%. In terms of the subscribed scale, the fund management scale of state - owned background managers dominates, accounting for 70% of the entire market, that is, 34.5% of state - owned institutions manage 70% of the industry's funds.

As government - guided funds become the main force in the primary market, the challenges they face, such as fund positioning, repatriation investment, exit, and fault - tolerance, have become more profound.

To solve these problems, in January this year, the General Office of the State Council issued the "Guiding Opinions on Promoting the High - Quality Development of Government Investment Funds" (hereinafter referred to as: Document No. 1 of the General Office), which pointed out: Clarify the fund's positioning, divide it into two categories: industrial investment funds and venture capital funds, implement differentiated management, and standardize the budget management of various government contributions to government investment funds. For example, it requires the finance department to reasonably arrange contributions based on the investment progress and surplus funds of the fund to prevent idle funds.

Document No. 1 of the General Office also mentioned that the approval of provincial and municipal government investment funds should be stricter, and county - level governments should strictly control the establishment of new funds; it is necessary to clearly establish and improve the fault - tolerance mechanism, encourage the cancellation of restrictions on the registration location of funds and fund managers, encourage the reduction or cancellation of the repatriation investment ratio; and improve the fund exit mechanism.

In July this year, the "Guidelines for the Layout Planning and Investment Directions of Government Investment Funds (Draft for Public Comments)" issued by the National Development and Reform Commission also attracted the attention of the venture capital circle, which pointed out:

Strengthen the guidance on the layout planning and investment directions of government investment funds, highlight the government's guiding and policy - oriented positioning, and prevent homogeneous competition and the crowding - out effect on social capital.

Do not aim at investment promotion, and encourage the reduction or cancellation of the repatriation investment ratio.

Prevent blind following and hasty actions in emerging industries.

For government investment funds established before the issuance of these guidelines whose investment fields do not meet the requirements of these guidelines, and in areas where there are many similar funds in the same region and the investment fields are obviously overlapping, in principle, they should withdraw in an orderly manner after the expiration of their duration; relevant funds are encouraged to be integrated and reorganized.

All these are strong evidence of the positive evolution of government investment funds, and every part of the venture capital industry will also be affected.

This article is from the WeChat public account "Investment World", written by Zhou Jiali, and is published by 36Kr with permission.