Southern metropolis Guangzhou is extending a hand to its local tech industry, allocating a combined 200 billion yuan ($29.2 billion) to two new funds to invest across a broad swathe of sectors and from nascent to large-scale projects.
The vehicles are structured as fund-of-funds (FOFs), a type of entity that invests in multiple funds with different strategies. The Guangdong province-registered FOFs — set up by state-owned Guangzhou Industrial Investment and Capital Operation Holding Group Ltd. — have different focuses and models, according to an announcement posted on its website on Sunday.
The launch of funds commanding hundreds of billions of yuan could help alleviate the overall lack of liquidity in the semiconductor market, one investor told Caixin.
The larger of the two entities, Guangzhou Industry Investment Fund Co. Ltd., has 150 billion yuan at its disposal and will invest using a “sub-funds + direct investment” model in mid-to-large scale projects in sectors including chips, new energy, biomedicine, healthcare, manufacturing, IT, and e-commerce.
The smaller FOF operates as a limited partnership. Guangzhou Innovation Investment Fund LP has 50 billion yuan in capital and aims to make early-stage investments in tech startups. It will establish an angel investment fund, a seed investment fund, and a fund to back talent and the commercialization of cutting-edge research.
But despite the size of the two funds, it could be a challenge for the FOFs to find enough investable qualified projects in the region given recent challenges facing the chip industry and macro economy, said a southern China-based investor who focuses on the chip industry.
At a launch event on Saturday, Gao Dongwang, the chairman of the Guangzhou Industry Investment and Capital Operation Holding Group, said the FOFs would focus on high-quality projects, with an aim to help them develop in the city.
Wei Dahua, executive director of the fund, said when setting up the sub-funds the FOF could contribute as much as 30% of their size. But the FOF won’t interfere with the sub-funds’ market-oriented decision-making and management fees will be determined according to market principles. In addition, other investors in a sub-fund should contribute at least 1.2 times the amount of the state FOF’s contribution.
The head of the Guangzhou Innovation Investment Fund Kuang Lijun said that its contribution to the sub-funds could be as high as 50%.
The managers of the FOFs’ sub-funds do not have to be registered in Guangzhou.
Public records show that Guangzhou Industrial Investment and Capital Operation Holding Group registered Guangzhou Industry Investment Fund and Guangzhou Innovation Investment Fund on Feb. 13 with registered capital of 60 billion yuan and 50 billion yuan, respectively.
The group, previously named Guangzhou State-owned Asset Development Holdings Co. Ltd., was founded in 2016 and received 90% of its funding from the Guangzhou government and 10% from the Department of Finance of Guangdong Province.
This article first appeared in Caixin Global.
