In the development process of China's equity investment market, the evolution track in recent years is particularly complex and full of variables, which is intertwined with macroeconomic fluctuations, frequent policy adjustments, and profound changes in the internal structure of the market.
Recently, the Executive Center released the Interpretation Report on Investors in China's Private Equity Market 2024, which details the capital flow of domestic primary market institutions LP since last year.
On the whole, the market is facing challenges and opportunities at the fundraising end. The government guided fund plays a more important role in private equity investment, while the industry and financial investors are more prudent in fund allocation. This series of developments not only tests the adaptability of the market, but also breeds new opportunities and challenges.
Government funds dominate the fundraising market, with state-owned assets accounting for more than 70%
In recent years, the subscribed capital of the national LP in China's private equity investment market has continued to decline. Compared with 2.08 trillion in 2020, the subscribed capital of the national LP in 2023 will be only about 1.34 trillion, which is almost half of the total.
In particular, government funds will become the absolute protagonist in the equity investment market in 2023, demonstrating the government's determination and action in promoting economic transformation and industrial upgrading. From 2020 to 2022, the proportion of government funds will remain stable at 43% to 50%, and in 2023, the proportion of government funds will reach 65.6%.
Behind the government's active investment is the strong demand for the fund to play a guiding role and support the development of local industries. In 2023, the government guided funds released 189 fund management organization selection announcements, an increase of 425% year on year. From the perspective of investment scale, the government guidance fund will contribute a total of 270.3 billion yuan in 2023, an increase of 9.1% compared with 247.9 billion yuan in 2022. It is the only type of institutional LP with increased investment amount in 2023.
The emergence and active operation of government guided funds are not only reflected in the significant increase in the number, but also in the flexible adjustment of market rules.
In 2023, Henan, Shaanxi, Hebei and other provinces will adjust the proportion of return investment underground, and relax the criteria for determining the proportion of return investment. In 2024, Jiangxi will even have 0.6 times of return investment.
Several local governments have lowered the proportion of reinvestment and relaxed the standard of reinvestment. These measures are of great significance in lowering the threshold, attracting more market-oriented GP participation, and enhancing the liquidity and use efficiency of funds. At the same time, they also reflect the urgent need of local governments to strive for innovation and breakthrough in the investment competition.
This "open" attitude of the government guiding funds marks a new exploration of the cooperation model between the government and the market, helps to activate the market vitality, and provides more diversified financial support for start-ups and strategic emerging industries.
Although the dominance of government funds has provided important support for the market, the participation of industrial capital and financial institutions as the main force of the fund-raising market has declined significantly.
From the perspective of the scale of subscribed capital, the industrial investors will make a total subscribed capital of RMB 2006 billion in 2023, a decrease of 49% compared with the subscribed capital of RMB 395 billion in 2022. The reason behind this phenomenon is that enterprises generally adopt conservative strategies, give priority to ensuring the stability of cash flow of core businesses, and reduce the risk of foreign investment.
At the same time, the cautious attitude of financial investors also reflects the uncertainty of the market as a whole and the conservative assessment of future expectations. In particular, financial institutions, in addition to maintaining a certain stability of insurance funds, have significantly reduced the willingness of banks, securities dealers and other traditional financial capital to contribute, especially the shrinking of securities funds, which further aggravates the tension in the supply of market funds.
Five major provinces and cities have invested more than 100 billion yuan, and funds continue to gather in economically developed cities
In terms of geographical distribution, the concentration trend of funds to economically developed areas is increasingly obvious. From the perspective of regional investment, the top five provinces and cities in terms of cumulative subscribed capital of institutional LPs nationwide from 2020 to 2023 are Beijing, Guangdong, Jiangsu, Zhejiang and Shanghai respectively. Among them, Beijing is the only city that has subscribed more than one trillion yuan in four years.
In 2023, out of the total amount of 1.34 trillion invested by LP in China, 1.04 trillion will come from the five major economic zones, accounting for 77.6%. Among them, the total amount of investment in the Yangtze River Delta region remains in the lead. In 2023, the total amount of investment will account for 36.7% of the five major economic zones, exceeding the combined proportion of Beijing Tianjin Hebei, the Central Triangle and Chengdu Chongqing regions.
This not only reflects the positive correlation between economic strength and investment activity, but also reflects the profound adjustment of regional economic pattern. In 2023, there will be five provinces and cities with a capital contribution of more than 100 billion yuan. Except Anhui, they are all coastal developed provinces and cities, of which Zhejiang Province has the largest capital contribution with a scale of up to 162.6 billion yuan, and Guangdong Province has jumped from the fourth to the second with a capital contribution of more than 150 billion yuan.
From the perspective of fund filing, there were 7689 private equity filing funds in China in 2023, with a total filing scale of 2.84 trillion yuan, a year-on-year decrease of 3%. Affected by the degree of industrial layout and economic development differences among provinces and cities, fund registration should be concentrated in economically developed regions such as the Yangtze River Delta and the Pearl River Delta. Private equity investment in other regions is less active, showing regional imbalance, which is highly related to the degree of industrial layout and economic development differences among provinces and cities. Among them, Guangdong's private equity ecology leads the country, and ranks in the top three in terms of fund size, fund number and project number.
At the same time, the rise of the central and western regions indicates the new trend of economic diversification. If we compare the annual data, it is not difficult to find that in the past few years, the investment of the old economic circle has been reduced, and the investment of emerging regions such as the Central Triangle and Chengdu Chongqing has increased continuously. In 2023, the total amount of investment in the Yangtze River Delta will decrease by 187.6 billion compared with 2020, the Pearl River Delta will decrease by 149.6 billion, 57.5% compared with 2020, and the total amount of investment in Beijing Tianjin Hebei will decrease by 397.6 billion, 75.7% compared with 2020. But on the whole, the imbalance between regions is still prominent, and the regional concentration of funds has exacerbated the uneven distribution of resources.
Early investment and small investment become consensus, and the market starts a new cycle of reform
Faced with the complexity of the market, investors have adjusted their strategies. Under the continuous guidance of the policy of "early investment and small investment" and the fierce market competition environment, the market as a whole pursues early layout, and has poured into the early investment field with venture funds as the main body, hoping to invest in projects early, improve the ROI (return on investment) of individual projects, and then improve the fund DPI (return on invested capital) index, forming a positive cycle with subsequent fundraising.
At the same time, under the attention of national policies and capital, the concentration of financing track has further increased. From 2020 to 2023, the track with the highest cumulative financing amount among the popular tracks is the new generation of information technology, including semiconductor chips and other strategic subdivisions, followed by the biomedical track. As an important part of the new quality productivity, the proportion of financing amount of strategic emerging industries has increased year by year. In the past four years, the proportion of enterprise financing amount in the whole market has continued to rise, from less than 50% in 2020 to 61% in 2023, an increase of 18 percentage points, and capital strength has further concentrated in the industry. According to the data in 2023, 16818 financing events occurred, of which 10180 were new quality productivity industry financing, accounting for 61%, showing obvious industrial concentration.
Although the positive signals and policy guidance of the government have brought some warmth to the market, China's equity investment market still needs to face the dual challenges of "difficulty in raising funds" and "limited exit channels". While actively responding, market participants also hope for more detailed and targeted policy support in the future to improve the market mechanism and optimize the investment ecology.
Under the background of industry cycle change, investment institutions need to strengthen internal management, improve the foresight and flexibility of investment strategies, so as to seize new growth opportunities in the next market cycle and achieve sustainable development. In general, although the future of China's equity investment market is full of variables, it also contains infinite possibilities. The key is how to find a path suitable for its own development in the reform.
