Shanghai State-owned Assets: Early exit can be agreed upon.

Shanghai has taken the initiative.

According to Jiemi LP of the investment community, Shanghai has officially issued the "Interim Measures for the Administration of Shanghai Government Investment Funds" (hereinafter referred to as the "Administrative Measures"), which consists of 7 chapters and 44 articles in total, systematically regulating the full - process management system of "raising, investing, managing, and exiting" of Shanghai government investment funds.

What's impressive is that, in principle, the same government should not repeatedly establish funds in the same industry or field; strictly control the establishment of new funds; the duration of the fund generally does not exceed 10 years; the management fee should be calculated based on the paid - in capital or the actual investment amount; if the fund fails to achieve the expected results, the investment progress is slow, or the funds are idle for a long time, the government - funded part can withdraw in advance according to the agreement; normal investment losses will not be used as the basis for initiating the liability determination process or accountability, etc.

Overall, Shanghai's "Administrative Measures" this time are a response and implementation of Document No. 1 issued by the General Office of the State Council at the beginning of the year.

Two major classifications of government investment funds

First of all, the "Administrative Measures" define government investment funds as investment funds established by governments at all levels in this municipality through budget arrangements, either by single - funded or jointly funded with social capital, and using market - based methods such as equity investment to guide various social capitals to support the development of relevant industries and fields, as well as innovation and entrepreneurship.

However, regions that have not fully guaranteed the necessary expenditures such as "ensuring basic livelihoods, salaries, and normal operations" and government debt interest payments, or regions with high debt risks, shall not allocate government funds to establish new funds.

Meanwhile, the "Administrative Measures" mainly divide government investment funds into industrial investment funds and venture capital funds, and clarify their respective investment focuses, which is consistent with Document No. 1 issued by the General Office of the State Council.

For venture capital funds, the government - funded proportion can be appropriately increased, the requirements for the fund's duration can be relaxed, and the performance evaluation cycle of the fund can be extended, so as to encourage venture capital funds to invest in early - stage, small - scale, and high - tech projects as patient capital. For industrial investment funds, a diversified capital - contribution structure should be established, the government - funded proportion should be appropriately reduced to attract more social capital, and the focus should be on supporting key links and key projects in key industries.

Strictly control the establishment of new funds

In recent years, the bustling scenes of government investment funds across the country are still vivid in our memory. We have also witnessed the government - guided funds spreading from the national and provincial - municipal levels to the district - county levels. Inevitably, there are problems such as homogeneous investment directions and blind establishment of funds in some regions.

Document No. 1 issued by the General Office of the State Council at the beginning of the year emphasized improving this situation and clearly proposed to prevent repeated investment and disorderly competition. This time, Shanghai's "Administrative Measures" further respond: the fund layout should be moderately concentrated. In principle, the same government should not repeatedly establish funds in the same industry or field to avoid homogeneous competition and fragmentation.

In addition, the establishment of government investment funds is subject to a two - level management system at the municipal and district levels and needs to be approved by the government at the same level. Districts should integrate and optimize existing funds based on the actual industrial development, strictly control the establishment of new funds, and prevent disorderly competition. In principle, township governments are not allowed to establish funds. After the district - level funds are approved for establishment, they should be promptly reported to the Municipal Finance Bureau for record. Except for the above - mentioned situations, government agencies and public institutions shall not establish new funds with fiscal appropriations or their own revenues. Existing funds should be uniformly and standardly managed in accordance with the requirements of government investment funds.

Shanghai encourages the integration and reorganization of funds in cases where there are many similar funds, the investment fields are significantly overlapping, or the investment performance fails to meet expectations.

It is worth noting that, under the wave of patient capital, Shanghai stipulates that the duration of newly established government investment funds generally does not exceed 10 years, but the duration of venture capital funds and investment funds in strategic emerging industries that are key development areas at the national and municipal levels can be appropriately extended.

Management fees based on paid - in/actual investment

The "Administrative Measures" clarify that, in principle, sub - funds should invest in direct investment projects, strictly control the fund levels, and prevent multi - layer nesting from affecting the achievement of policy goals.

As state - owned assets have become the main contributor in the primary market, in the daily management of funds, there is sometimes a phenomenon that government LPs have excessive say. Therefore, the "Administrative Measures" define the boundaries between the government and the market, requiring government departments at all levels to fully respect the development laws of government investment funds and the characteristics of project investment. Do not intervene in the daily management of funds and specific project investment decisions by administrative means. At the same time, fund managers should optimize the investment project selection mechanism to prevent deviation from policy goals and competition with the private sector.

In recent years, there has been more and more discussion about GP management fees in the primary market. Document No. 1 issued by the General Office of the State Council proposed that "the paid - in capital or the actual investment amount should be used as the billing basis". Shanghai's "Administrative Measures" make more detailed regulations, proposing that the management fees should be differentially managed at different stages of the investment period and the exit period -

During the investment period, the management fee of the fund should be calculated based on the paid - in capital or the actual investment amount. During the exit period, it should be calculated based on the unrecovered original investment cost, and the management fee calculation standard should be appropriately reduced. No management fee shall be charged after the expiration of the fund's duration.

Government investment funds can withdraw in advance

To date, a large number of government investment funds have reached their maturity, but due to various factors, the difficulty of exiting has become a problem.

Previously, Document No. 1 issued by the General Office of the State Council put forward guiding opinions on standardizing the exit management, broadening the exit channels, and improving the exit mechanism, encouraging the exit in a market - based way. This time, Shanghai's "Administrative Measures" stipulate the situations of voluntary early exit and forced exit due to breach of contract, that is, if the exit conditions are met before the expiration of the fund's duration, with the consent of all investors, the fund can exit in a timely manner through repurchase, transfer, etc.

If the fund fails to achieve the expected results, the investment progress is slow, or the funds are idle for a long time, the government - funded part can withdraw in advance according to the agreement.

Some local governments are exploring circular investment, while Shanghai's "Administrative Measures" adopt the principle of no circular investment in principle. After the sub - funds and projects invested by the fund are exited, the fund manager should promptly distribute the funds to the investors. The principal and income belonging to the government - funded part should be promptly and fully turned over to the state treasury in accordance with the relevant regulations of the fiscal budget and treasury management system.

Currently, fault - tolerance has become an unavoidable reality in the primary market, and the exploration of fault - tolerance for state - owned assets is obvious. This time, the "Administrative Measures" also propose that the state - owned assets department should take the lead in formulating relevant systems for due - diligence exemption of government investment funds, follow the operation laws of fund investment, optimize the exemption determination standards and procedures, and not use the profit or loss of a single project or a single year as the assessment basis.

At the same time, those who have fulfilled the decision - making procedures in accordance with laws and regulations, met the due - diligence requirements, and have not sought illegal benefits should be exempted from liability. Normal investment losses will not be used as the basis for initiating the liability determination process or accountability.

Conclusion

As we all know, government investment funds have become an important force in the domestic venture capital industry, and government - guided funds are 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 background accounted for 34.5%. In terms of the subscribed scale, the fund management scale of managers with state - owned background dominates, accounting for 70% of the entire market, that is, 34.5% of state - owned institutions manage 70% of the funds in the industry.

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

Until January this year, the "Guiding Opinions on Promoting the High - Quality Development of Government Investment Funds" officially issued by the General Office of the State Council, that is, the far - reaching Document No. 1, was released. Since then, government - guided funds, which have experienced more than a decade of explosive growth, have turned a new page. Subsequently, we have seen that regions including Shanghai, Guangdong, Zhejiang, and Fujian have followed up and successively issued relevant management measures for government investment funds.

These scenes are a strong indication of the positive evolution of government investment funds. Every cog in the primary market is also turning, and a healthier, more mature, and more efficient venture capital ecosystem is emerging.

Appendix: The original text of the "Interim Measures for the Administration of Shanghai Government Investment Funds":

This article is from the WeChat public account "Jiemi LP", author: Zhou Jiali, published by 36Kr with authorization.