Service Hotline: 400-826- 0806

News center

News
行情分析

[Original Research] Upgrades of Government-Led Industry Funds

Date: 2016-10-12
Views: 39

Driven by the policy encouraging the people to start businesses and make innovations, China’s government-led industry funds have entered a rapid growth period and become an important force gathering elements of innovation. For a very long time, China’s government-led funds were mainly government-led VC funds, supplemented by government-led industry funds and government-led strategic funds. However, the “Interim Measures to Administer Government-Led Funds” introduced in 2015 suggests we should focus on dominant industries, emphasizes that government-led funds should guide all kinds of social capital to invest in the key fields and weak links in our economic and social development, to support related industries and fields’ development; government-led funds should no longer be focused on VC firms, but should be used to support innovation, startups and SMEs’ development, industry transformation and upgrading, as well as infrastructure and public services, etc. Henceforth, government-led industry funds really ushered in its golden period.

Government-led Industry Funds Drive Zhejiang Economy’s Transformation and Development

Zhejiang has a developed private economy. The province’s industrial clusters are formed by highly specialized SMEs. They enjoy advantaged location, historical and cultural deposits. But in the meantime, they also have some deficiencies. First, they lack the ability to make innovation independently. The shortage of high-quality professionals and management personnel make the enterprises lack the personnel basis for making innovation independently. The difficulty of getting loans makes SMEs lack the economic basis for making innovation. Second, industrial clusters formed by SMEs face the difficulty of optimization and upgrading. Third, industry chains haven’t been formed in the industrial clusters. The market is not big enough. The scale effect formed regionally has led to excess production capacity. Transformation and upgrading are urgent. However, government-led industry funds can play a positive role in a regional economy with such traits. Government-led industry funds can help guiding social funds to concentrate and form the capital supply effect; government-led industry funds can help optimizing the direction of capital allocation and bring the state’s industry policy into effect; government-led industry funds can help guiding the direction of investment and support innovative SMEs; government-led industry funds can help guiding the flow direction of regional funds, coordinate the regional economy’s development; government-led industry funds can help realizing the sustainable recycling of funds and the leverage effect of government funds. Zhejiang has set up a group of government-led funds and Industry transformation & upgrading funds in various cities, to support startups, SMEs, strategic emerging industries’ development. 3rd-party asset management institutions have been entrusted to manage the funds.

In 2007, Zhejiang set up the first group of provincial government-led VC funds. Zhejiang Hesheng Fund was among them. Initiated and managed by a 3rd-party management institution--Zhejiang Silicon Paradise Asset Management Group (hereinafter referred to as TTGG), the fund mainly invests in technology-based SMEs in Zhejiang. It was one of the first domestic funds to introduce 3rd-party asset management institutions. Later, TTGG also took part in the establishment of a series of VC funds for local technology innovation and took charge of them, including the government-led fund of Hangzhou—Hangzhou Hefeng Fund, the government-led fund of Taizhou—Taizhou Heying Fund, the government-led fund of Ningbo—Ningbo Hezhong Fund, etc. Every fund’s size was RMB 100 million Yuan. The contribution of government funds was 25%-30%. Clear restrictions were imposed on the proportion of investment in early-stage projects and the proportion of local regional investment. A fixed return rate and the time to withdraw were stipulated. It is worth mentioning that the Zhejiang government-led fund—Zhejiang TTGG Hesheng Fund smoothly realized the withdrawal of government funds three years after its establishment. It also was the first 3rd-party managed provincial government-led fund to withdraw successfully. Moreover, in Hangzhou’s government-led VC fund, TTGG for the first time introduced the Innovation Fund for Technology Based Firms under the Ministry of Science and Technology as the fund’s shareholder. In the angel investment field, TTGG actively assisted the establishment of Hangzhou Government-Led Dandelion Angel Fund, to support the people to start business and make innovations, increase capital support and business coaching for incubating and realizing innovative projects in Hangzhou. On May 18, 2015, Zhejiang Government issued the “Opinions on Bringing Forth New Ways of Supporting Economic Development by Government Financial Support, Speeding up Setting up Government-Led Industry Funds”, decided to set up provincial industry funds adding up to RMB 20 billion Yuan. After the new policy was put into effect, TTGG took the lead in trying government-led industry funds. In 2015, it successively won multiple local governments’ trust, became the manager of government-led industry transformation and upgrading funds of Taizhou, Keqiao and Zhoushan, effectively supported the development of regional key industries.

Government-led Industry Funds Try Professional Management

When the scale of government-led industry funds grows sharply, it has become an irresistible trend for the government to change its functions, delegate powers, return to its original position. Government-led industry funds are gradually turning toward market operation. More and more professional 3rd-party asset management institutions will be introduced to manage bigger and more complicated industry funds. In the past, government-led funds focused on investment. There were barely any clauses on post-money supervision and appraisal mechanisms in fund agreements. The “Interim Measures to Administer Government-Led Funds” introduced by the Ministry of Finance in 2015 clearly required “local financial departments at all levels should set up government-led fund performance appraisal systems, appraise every fund’s target realization and operation each year, effectively use the appraisal results.” Zhejiang Government is also drafting methods to administer government-led fund withdrawal and performance appraisal. This indicates in the future post-money supervision and appraisal mechanisms will be established and gradually perfected. Both the investment in early stages and the management in later stages should be controlled. Government-led industry funds also will uphold the contractual spirit, enter a professional fund management era where performance is the key, which means higher requirements will be imposed on 3rd-party management institutions. 
 
     
How do government-led industry funds choose fund managers?

Most government-led industry funds come from government funds. They usually put safety in the first place. Meanwhile, they are not for profits, have to give consideration to policy demands, have restrictions on the industry, region and stage to invest. Therefore, government-led funds usually choose investment targets by order of importance, which respectively “safety, policy appeal, liquidity, profitability”. Against this background, government-led industry funds have strict screening criteria and due diligence process for GP. First, the investment institution to initiate and manage a fund must have a high-quality management team. Team members’ past achievements, the degree of cooperation between team members are key points for government-led industry funds in selecting GP. Next, the government requires GP to have an efficient decision-making process, mature risk control mechanism and scientific investment strategy. In addition, a complete institutional operation system, rich experience in fund operation and outstanding past achievements are all important criteria for the government to select GP.

As one of the earliest PE firms to join government-led industry funds in Zhejiang, TTGG is favored by many local governments because through its constant exploration and practice in the past 16 years, it has gradually formed a set of efficient decision-making process, comprehensive risk control ability and professional value creation ability. In terms of professionals, TTGG has an elite senior management team. Most of the members have a business background in listed companies or a senior management background in financial institutions. Most specialized project team members have an industrial background or financial career background, with solid professional qualities and rich practical experience. By the end of June 2016, the group had funds exceeding RMB 16 billion Yuan under management. All funds’ average IRR was 31.08%. 
    
TTGG Takes Part in the Exploration and Practice of Government-led Industry Funds

1. First Exploration: Taizhou Industry Transformation and Upgrading Fund

In Jan. 2015, led by Taizhou Government, jointly founded by Taizhou Financial Investment Co., Ltd., Zhejiang Branch of the Industrial and Commercial Bank of China and TTGG, Taizhou Industry Transformation and Upgrading Fund went into operation. The fund’s size is RMB 800 million Yuan. TTGG became the fund’s manager. This marked an important step by TTGG in taking part in regional financial reform and innovation, industry transformation and upgrading.

For a long time, Taizhou private enterprises were small and scattered. Influenced by multiple factors like industry competition and overproduction in recent years, some large enterprises faced a series of problems like profit space compression and market value shrinking. By setting up industry funds, giving play to the leverage effect of local funds, we not only can absorb bank capital, social personal capital and private business capital to invest in Taizhou enterprises, but also can introduce external resources and technical advantages in industry chain integration, technology upgrading, employee incentive, market value management for the invested enterprises, so as to help Taizhou transform and upgrade its “Sparrow Economy” to “Wild Goose Economy”. So far, the fund has successfully invested in 2 projects, levered capital via its platform and activated the “pond of spring” of the regional economy again.



2. Development: Zhoushan River-Ocean Combined Transportation Industry Investment Fund

In Oct. 2015, guided by Zhoushan Municipal Finance Bureau, co-funded by 7 investors, including Zhejiang Branch of the Industry and Commercial Bank of China, Zhoushan Communications Investment Group, 3 local municipal state-owned enterprises and TTGG, Zhoushan River-Ocean Combined Transportation Industry Investment Fund was formally set up. In the form of an industry fund, it gives play to the government’s guiding role, has market-oriented operation as basis and relies on the management by a professional institution. The fund makes up for Zhoushan’s deficiencies like the sole financial approach and backward financial services. The fund’s size is RMB 10 billion Yuan. The scale of phase-1 is RMB 2 billion Yuan. 15% is contributed by government funds. It invests in industries that conform to the state’s industrial policy and industrial development trend, particularly Zhoushan Archipelago New Area’s port shipping and enterprises in related upstream and downstream industries, land reclamation, emerging marine industries, etc, so as to promote the River-Ocean Combined Transportation Industry’s development, as well the port shipping industry’s transformation and upgrading. 


As one of the core initiators, TTGG joined hands with Zhoushan Communications Investment Group and ICBC, set up an exclusive industry fund management company platform, delegated the fund management company’s General Manager and core members, created a professional investment management team to take charge of the industry fund’s investment management and daily operation. The industry fund adopts “government guidance, market operation and professional management”. The investment targets are selected by the fund management company by itself. At the end of 2015, the industry fund invested RMB 250 million Yuan in an outstanding regional shipbuilding modular product provider—Ouhua Machinery in the form of a convertible bond. After the investment matures, the fund manager has the right to convert the bond into shares of a subsidiary of Zhejiang Ouhua planning to go public. Using its professional advantage in capital operation, TTGG provides the enterprise with resources and services concerning development strategy, supply chain, branding, marketing, IT, capital operation, etc, to help it standardize its financial management, improve its profitability, conduct industry integration and upgrading, enter the capital market. So far, the Industry Fund has signed framework agreements on strategic investment with a dozen Zhoushan enterprises in the industry. In addition, three quality enterprises also have entered the investment decision making stage one after another. By setting up Zhoushan River-Ocean Combined Transportation Industry Investment Fund, TTGG has played a positive role in regional industrial development. First, it enhances the effect of government funds guiding industries; second, it provides regional industries with a more flexible financial capital platform; third, it cultivates financial investment professionals and environment; fourth, it builds regional industry alliances and cooperation chains. 
 

3. Innovation: Shaoxing Keqiao Government-led Industry Fund

In June 2015, as a market operation oriented PE firm, TTGG set up a RMB 1 billion Yuan Shaoxing Keqiao Industry Transformation and Upgrading FOF with Keqiao District Government, and became the fund’s manager. Following the general idea of “government guidance, market operation, separate management and risk prevention”, the fund mainly adopts FOF and direct investment. It mainly invests in projects in Zhejiang province’s seven key industries, national and provincial strategic emerging industries, new and high-tech industries.


It’s worth mentioning that the fund creatively initiated double strategic arrangements, i.e. the combination of “PE+ government-led industry fund+ leading local firms+ financial capital”, the “PE+ listed company+ quality assets” incubation and cultivation pattern. This pattern applies the secondary market’s lever principle to the primary market. It can effectively integrate the local government, financial capital, leading local firms in the industry, fund managers and other superior resources. Through the structured design, it can balance all participants’ benefits and risks, become a driving force to efficiently promote regional industrial transformation and upgrading. Based on the operation idea of “setting up sub-funds after confirming projects”, this fund already has four sub-funds that have been successfully carried out, two pending projects that will sign contract and be implemented. It has directly invested nearly RMB 2.5 billion Yuan in Keqiao District’s enterprises, directly raised RMB 2.5 billion Yuan from the society (including financial institutions), brought big social and industry guiding effects, formed certain regional features, awareness and influence in other regions in Zhejiang.

4. Upgrading: Wenling Fund Town

After three stages of exploration in joining government-led industry funds, TTGG has gradually won various local governments’ recognition, attracted other local governments’ attention. In Aug. 2016, TTGG signed a Framework Agreement on Wenling Fund Town Project with Wenling New Urban District Management Committee and Wenling Chamber of Commerce in Hangzhou. This pattern is an upgraded version on former sole industry FOF cooperation. It provides all-round financial services for the government to build the fund town. Wenling Fund Town Project plans to select its site in Wenling New Urban District, make the Fund Town South of Mount Yuhuang in Hangzhou its benchmark, and learn famous domestic and overseas fund town’s successful experiences. Based on the local economy’s features, depending on the city’s four traditional pillar industries, through the project’s construction by Wenling Chamber of Commerce in Hangzhou, it plans to make Wenling a leading city/county-level fund cluster in Taizhou and even the whole China. According to the agreement, through the fund town’s construction, TTGG will help Wenling Government promote the city’s traditional industries’ transformation and upgrading, guide the development of new economy, to bring the city’s economy to a new level. In five years after the project is completed, TTGG and Wenling Chamber of Commerce in Hangzhou will introduce at least ten fund companies registered in Wenling, including one to two top ten Chinese-funded private equity investment institutions in China, make the fund size exceed RMB 10 billion Yuan, and invest at least RMB 5 billion Yuan in Wenling (excluding investment in real estate enterprises), set up angel funds, industry funds, private placement funds, real estate funds, PPP funds for this project. TTGG hopes through the Fund Town Project, institutions, talents and funds can be introduced into Wenling, to serve the local economy of Wenling. 
 
In the course of joining government-led industry funds in the past more than a year, TTGG in fact also met all kinds of problems in actual operation. First, the industrial structure was traditional, the cost of transformation was high; second, the partners had different ideas; third, the local financial business type was sole and lacked professionals. However, none of the problems made the investment team withdraw. By communicating and consulting with the local governments, invested enterprises and partners, it gradually unified all parties’ ideas in the end, won the local governments and enterprises’ recognition. In TTGG’s mind, as a government-led industry fund manager, how to balance the fund’s policy-based nature and marketization, how to balance all sides’ profits on the basis of understanding their demands, how to realize all-win by an ingenious fund structure design make the magic key to the fund’s health development. At present, TTGG’s holding parent company GGTT is also actively joining government-led industry funds in Sichuan, Shaanxi and Jiangxi, etc.

As an active player in Zhejiang government-led industry funds, in the future, TTGG will continue to give full play to its rich experience in industrial investment and asset management, its advantages in global resource allocation, use diverse investment methods, market-oriented professional management and risk control, to guide more social capital to support government-led industry funds’ development, help more enterprises create, change and enhance value, so as to help regional economies realize transformation and upgrading. We believe, with the participation of more and more professional 3rd-party management institutions like TTGG, Zhejiang province’s government-led industry funds will make greater contributions to regional economic development.

                   
                                                                    
(Source: the Oct. 2016 Issue of Zheshang Financiers)


News / Related news More
2021 - 01 - 18
On January 18, 2021, Tianneng Battery Group Co., Ltd. (hereinafter referred to as 'Tianneng shares', stock code: 688819), an investment company invested by Paradise Silicon Valley Holdings' parent company, Silicon Valley Paradise, officially landed on the Science and Technology Innovation Board.Tianneng Co., Ltd. was established in 2003. It is a green power battery business for electri...
2017 - 11 - 30
CAI Gangqing, president and deputy secretary of the Party Committee of Anji Industrial Investment Development Group (IIDG) paid a visit to TTGG with 5 colleagues on the afternoon of 30th November. ZOU Jin, general manager and deputy secretary of the Party Committee of IIDG, FANG Jun, vice-general manager, and other department heads of IIDG attended the discussion. Our managing partner ZHANG Y...
2017 - 11 - 28
Zvi Heifetz, Israeli Ambassador to China, paid a visit to TTGG along with his wife on the evening of 28th November 2017. They were greeted by TTGG’s president YU Baohong. ZHANG Yu and GUO Feng, managing partners of TTGG, LI Xiang, general-manager of Investment Management Department, and other department heads also took part in the meeting.After greeting, YU briefly introduced TTGG’s hist...
2017 - 08 - 14
With the accelerating rhythm of the society, more and more white-collars are feeling stressed under modern work environments. In fact, such stress primarily results from the target-oriented time management. The key factors facilitating their abilities to improve time management efficiency and effectiveness are: how to find the causes of inefficiency, how to distinguish between the important things...
Copyright © 2016 - 2019 Zhejiang Paradise Silicon Valley Asset Management Group Co., Ltd
犀牛云提供企业云服务
X
1

QQ设置

3

SKYPE 设置

4

阿里旺旺设置

等待加载动态数据...

等待加载动态数据...

5

电话号码管理

  • 400-826-0806
6

二维码管理

等待加载动态数据...

等待加载动态数据...

展开