Some people take nighttime cruises along the Qiantang River; others fly all the way to Singapore. They all have bright futures ahead of them.

By Lili Yu, Qian Ren, and Muxin Xu

Edited by Jing Liu and Lili Yu

Two Venues, One Shared Sorrow

On the evening of September 21, aboard a cruise ship on the Qiantang River, a group of China-based fund investors clinked glasses in convivial spirits. Simultaneously, in Singapore's Marina Bay Sands — billed as "the most expensive hotel in history" — what may have been the largest offline gathering of dollar-denomination investors from China in recent years was unfolding.

Separated by 3,600 kilometers, Hangzhou and Singapore hosted two investor gatherings that September: the 36Kr China Fund Partners Summit and Super Return Asia.

The timing was uncanny. The clash wasn't merely between "coffee" and "tea," "red wine" and baijiu, "cigars" and "cigarettes." Something deeper was at play: China's investment industry was watching its globalization and localization narratives wade into different rivers.

For the past six months, Singapore has been swarming with people. Anyong Waves had sporadically heard of investors flocking to the Lion City, with numerous funds and financial advisory firms even opening new offices there. But this Super Return conference likely represented the highest concentration of investors yet.

Save for a handful of top-tier firms like Hongshan, you could find partners from virtually every pure-dollar and dual-currency fund in China.

Upon entering the venue, Xu Shi, founding partner of Shanshan Capital, realized she was seeing more GPs here "than she had encountered domestically over the past year." One dollar fund partner observed that you could "run into an acquaintance every three to five minutes."

In theory, Super Return primarily targets global LPs sitting on vast pools of capital — university endowments, fund-of-funds, pension funds — offering them a platform to engage with GPs. Historically, GP attendance was typically lower than or at best equal to LP attendance. This time was clearly different.

One dollar fund partner offered a rough estimate: at previous summits, you'd encounter an LP every four or five people you passed; this time, it took seven or eight. "LP numbers are likely far below GP numbers."

In fact, bracketing the Super Return conference were several other events drawing investor interest: the Milken Institute Asia Summit, TOKEN2049 (Asia's largest Web3 gathering), and even the Formula 1 Grand Prix. Consequently, hotel rates in Singapore's core districts briefly hit $2,000 per night — an all-time high.

A common misconception is that investors converged on Singapore for deal sourcing. Not so. Apart from Web3, Singapore isn't exactly a hotbed of startups. It functions more as a social intermediary between GPs and LPs. Hence the notable prevalence of partners rather than mid-level or junior staff.

Interestingly, as multiple participating partners described to us, past editions typically drew more industry "heavyweights," whereas this year featured more number-two and number-three executives at funds. "Perhaps because even if the big names came, nothing substantive would result — so they sent others to test the waters first."

Most respondents emphasized to Anyong Waves that the trip was largely about "soft outreach," or as XVC partner Lu Yi put it, "maintaining relationships with existing LPs we hadn't seen in person for three years."

Still, LP participation was considerable. One dollar fund partner estimated roughly seven to eight hundred LPs on the conference app. Beyond North American and Asia-Pacific LPs, there was notable growth from new family offices, the Middle East, and Europe. "Family offices comprised about 20%, and there were some forty-odd Middle Eastern institutions."

New faces also proliferated among GPs. Vietnamese and Indonesian and other Southeast Asian representatives were markedly more visible, and with innovative finance rising globally, new GPs were emerging everywhere. One dollar fund partner even encountered an investor who had flown 54 hours from Chile to attend.

To some extent, the conference encapsulated core themes in dollar investing. One dollar fund partner's observation: Web3, cryptocurrency, robotics, new energy vehicles, autonomous driving, and AI — domains where dollar funds traditionally excel — dominated conversations.

Shift the scene to the Qiantang River, and the discourse transformed entirely. At this dinner assembling some forty to fifty domestic GP-LP participants, the prevailing keywords were "policy," "investment attraction," and "DPI."

Anyong Waves overheard one exchange: one person declared with certainty that "the path for dollar funds is growing ever narrower" — a sentiment hardly novel over the past six months. But the other retorted: "RMB funds aren't having it easy either. Anyone who raised over a billion RMB this year is impressive."

LPs are scarce everywhere. Case in point: Zhongjing Capital, a modest-sized fund-of-funds, saw managing partner Li Shihua immediately surrounded by over twenty people the moment he stepped off a panel.

At least from a fundraising perspective, RMB and dollar funds currently share a common sorrow.

Where Is the New Money?

Anyong Waves has argued that for any fund, fundraising — specifically, where the money comes from — may be the most decisive factor shaping its style. These two conferences thus offered an ideal lens into the dollar and RMB fund industries.

Super Return attendees gained access to a conference app allowing filtering by region and role, enabling participants to locate desired contacts.

The largest LP growth came from family offices, the Middle East, and Europe. One dollar fund partner encountered numerous unfamiliar family offices; upon inquiry, most traced back to executives at major internet companies. Middle Eastern LPs, while not numerous in headcount, saw their large sovereign wealth funds become objects of intense GP competition.

This fund partner told Anyong Waves that in current conditions, existing LPs typically reduce rather than increase commitments. One emerging alternative: bringing in new LPs. He heard of one recent fund raise where new LPs might constitute as much as one-third.

These new LPs, however, bring their own concerns due to immaturity. Traditional "old money" operates with mature, standardized evaluation frameworks — granular enough to specify that "4x returns per fund cycle is passing." New money ranges from "1-2x is great" to "7-8x is required."

For the RMB market, fundraising growth primarily stems from insurance capital and commercial bank wealth management subsidiaries. According to Shao Jun, founding partner of DT Capital, these will become the two largest incremental sources in the RMB market over the next three to five years.

Shao views insurance capital's long-duration liabilities as ideally matched to VC/PE's long-term investment horizon. Yet for years, insurers favored fixed-income, principal-protected products and packaged assets over blind-pool investments, coupled with near-term return metrics that kept them from deeper VC/PE participation. Now, "S-fund allocations paired with blind-pool commitments" are gradually resolving this.

Additionally, Shao argues that much of recent fundraising difficulty stemmed from the disconnect between commercial banks and equity investment funds following asset management regulations. "However justified those regulations were, once the door closed, insufficient alternative water sources remained to sustain the market." Commercial banks are now addressing this through wealth management subsidiaries, but it's a protracted process: these entities must segment vast customer bases, identify clients suited for 7-8 year equity lock-ups, and train personnel — all requiring substantial time.

Within three to five years, virtually every respondent at the 36Kr Fund Partners Summit agreed, government and state-backed capital has been and will continue becoming more dominant.

On September 21, a state-backed LP from Hangzhou's Yuhang district crossed half the city to attend 36Kr's summit. His Yuhang Future Sci-Tech City Dream Town, formerly rice paddies just years ago, now positions itself as China's answer to Silicon Valley.

This exemplifies Chinese local governments' active GP investment. A 10-plus-year IR veteran told Anyong Waves that domestic government guidance funds were once concentrated in a handful of first-tier cities, but the success of models like Hefei and Suzhou has spurred nationwide GP investment. Industry chatter about over 75% of RMB market capital originating from government or state sources derives from this.

Shenzhen Angel Fund of Funds and Futian District Guidance Fund back Alpha Startups. In Xu Siqing's view, Shenzhen's guidance fund terms are quite attractive: "So Shenzhen's model creates a siphon effect nationwide — like a straw sucking in GPs from across China, then filtering for suitable candidates. Capturing angel GPs in bulk means controlling the source of living water. It's a win-win for guidance funds and GPs."

Yet multiple domestic fund partners told us that compared to the past, local government investors care less about investment returns and more about stimulating local commerce — what's commonly called "investment attraction." A few years ago, capital return requirements were typically year-end obligations; now they're day-one considerations.

"This is intensifying," one headhunting firm executive once told Anyong Waves — so much so that their fundraising materials now include a new section: how much business potential they can generate for prospective guiding fund investors.

Adapting to this shift, DT Capital managing partner Shao Jun brought government-background talent onto his team for investment attraction and enterprise services. Meanwhile, Xianfeng Changqing partner Zhao Yang told Anyong Waves: "Now you must consider local industry characteristics and guiding policies from day one of fund formation. RMB GPs need strong government collaboration from day one."

So even in 2022, widely perceived as a transitional drought year, both dollar and RMB markets saw non-negligible shifts in their investor bases.

Left or Right

The divergence between dollar and RMB funds has existed since venture capital's emergence in China two decades ago. As early as 2009, RMB was declared the "RMB元年" (RMB inaugural year) when fundraising and investment volumes first surpassed dollar figures. But strictly speaking, this is the first year RMB funds' voice has truly exceeded that of dollar funds.

"Over 80% of new investments are in RMB — completely different from previous years," one dual-currency fund partner told Anyong Waves. Previously they led with dollars in internet, using RMB supplementally for technology and advanced manufacturing; now RMB leads, with dollars backing overseas expansion, consumer, or enterprise services.

The migration from dollar to RMB continues. Hesperus Capital, founded in 2017 as primarily dollar-denominated, began RMB deployment this year. Its president and managing partner Zhang Menghan found that semiconductors and new energy — sectors where pure dollar funds now struggle to access top companies. "Entrepreneurs in these fields prefer RMB capital."

Within dual-currency funds, RMB's internal weight is shifting. CMC Capital's Cai Xiang emphasized: "CMC will increase investment in RMB-related thematic directions." Recently recruited from SenseTime, where he led AI industry funds and strategic investment, Cai specializes in technology investing.

This gravitational shift between dollar and RMB is making their relationship increasingly delicate. At many levels, the two remain intertwined. In the view of 5Y Capital partner Liu Kai, dollar and RMB LP preferences are converging: dollar LPs increasingly demand certainty, while traditionally conservative RMB LPs show growing appetite for innovative sectors.

Yet distance is widening. "Previously RMB and dollar operated as one team, two funds; now it's two teams, two funds." According to Yuanhe Chenkun senior partner Wang Jipeng, the convergence trend will gradually break down into strict partitioning — some industries and regions exclusively for dollars, others exclusively for RMB.

Dollar and RMB LP demands have always diverged dramatically. Dollar LPs want concentrated positions, market dominance, big returns; DPI isn't a priority. RMB LPs are more pragmatic, demanding principal protection plus high DPI, with strict exit timelines and deadlines. This year, RMB LP requirements have proven even more stringent. "Some want returns, some want investment attraction, some want strategic synergy with listed companies — they want everything," Wang Jipeng told us. RMB fundraising "puzzles" require reassembly every time.

Dollar and RMB LP styles differ starkly too. One dual-currency fund partner said they used to convene all LPs together, until realizing how ill-suited this was. "With RMB LPs it's dinners and drinks — relationships must be intimate. With dollar LPs it's a PowerPoint, cold refreshments, done." Zhao Yang spent a decade meeting dollar LPs in simple T-shirts or athletic wear; now every RMB LP trip requires buying a dress shirt on arrival — "you have to find ways to fit in."

The domestic dollar fund pivot toward RMB is also distancing them from overseas dollar funds — a significant concern for foreign LPs. One dollar fund partner told Anyong Waves that from overseas LP perspectives, while dollar-RMB conversion channels remain open and QFLP (Qualified Foreign Limited Partner) investment in JVs (joint ventures) is possible, dollars remain preferred due to underlying concerns. First, certain sectors are off-limits; second, domestic entrepreneurs resist taking dollar capital; third, divestment and exits are smoother in U.S. equities.

RMB faces parallel constraints. Songhe Capital partner Feng Hua told Anyong Waves that ODI (Outbound Direct Investment) filings are cumbersome. Incubating overseas advanced technology, for instance, is difficult with mainland investment entities; RMB capital can't easily exit, and ODI processes are complex. Though Hainan and Hengqin have pioneered unprecedented "domestic customs territory" models, actual implementation takes considerable time. "Many projects take over half a year to complete."

Still, domestic dollar fund investors have tactics to persuade overseas LPs. One second-generation fund partner spun out from an established dollar fund told Anyong Waves that compared to funds converting from RMB to dollar, their more authentically dollar origins better resonate with foreign LPs because they maintain "long-standing, fixed global networks" — meaning "part can go to China, the bulk can go overseas."

Overseas investment is a key persuasion tool. One dollar fund partner said they already allocate 20% outside China, rising to 40-50% including companies expanding or considering international markets. "Cross-market rather than single-market concentration is risk hedging."

In this partner's view, despite growing barriers between domestic and overseas dollar funds, domestic players aren't lagging on hot sectors like Web3 that overseas dollar funds track. "Whether they've invested or not, whatever the boss's stance, there are always determined young voices researching or pushing the fund to invest." Several active top-tier funds have deployed in roughly ten such companies.

Yet against broader historical fault lines, these bridging efforts seem trivial.

In 5Y Capital's Liu Kai's view, "RMB funds are progressing from infancy to adolescence — growing larger, more systematic. Dollar funds, conversely, are transitioning from adulthood to middle age."

This dislocation suggests that between RMB and dollar funds, between the Qiantang River and Singapore's Marina Bay, the same story will no longer unfold.

Image source | Visual China

Layout | Guo Yunxiao