CBC Group’s debut renminbi-denominated buyout fund is not a solo affair. The healthcare-focused manager teamed up with government-owned Beijing Shunxi Private Equity Fund Management under a relatively unusual co-GP structure. All the CNY 7bn (USD 964m) secured in the first close then came from state-owned enterprises based in the Chinese capital.

Other global managers are making their own tie-ups. The likes of PAG and L Catterton have signed up local government affiliates as anchor LPs, arrangements that typically come with conditions attached to investment remits. It underlines the innate difficulties of renminbi fundraising – and the compromise often required to get it done – even as more managers look to this channel.

“The capital mainly comes from governments and guidance funds, while private money remains limited in the private market. In contrast, we see capital is flowing to the public markets, especially in Hong Kong,” said Frankie Fang, founding managing partner of local fund-of-funds Starquest Capital. Asked to explain this dynamic, he added: “Exits in the renminbi space haven’t improved.”

Geopolitics, regulation, and necessity are driving interest in renminbi fundraising from GPs traditionally active in the US dollar fund segment: a global manager might conclude it is easier to access certain sectors via onshore capital pools; a local manager could turn to renminbi funds on finding that international LP appetite for its next US dollar offering is weak.

Commitments to US dollar China funds have fallen each year since 2021, and the running total for 2025 is sub-USD 1bn, according to AVCJ Research. The renminbi side has ballooned – albeit helped by a handful of very large government guidance funds. Fundraising for 2022 to date is USD 405.9bn, compared to USD 347.8bn for the prior five years. In 1H25, over USD 59bn was raised.

Government relations

Renminbi funds tend to have homogeneous LP bases. SOEs and government guidance funds accounted for 81.6% of commitments in 2024, up from 73% a year earlier, according to LP Institute, an advisory firm serving local LPs. The rest comes from insurance companies, corporates, financial institutions, and the National Council for Social Security Fund (NSSF).

Most recent initiatives aimed at PE and VC have been in the government space – newly launched government funds, SOEs becoming more willing to participate in investments, and a fresh batch of bank-affiliated asset investment companies (AICs) engaging with state-owned fund managers.

Meanwhile, new managers face stringent scrutiny. Prior to May 2023, there were routinely 100-200 registrations per month. Then the Asset Management Association of China (AMAC) reformed its compliance regime, scrutinising applications more closely and requiring more detailed reporting. Across the full 12 months of 2024, there were 115 registrations.

LPs are also cutting back commitments, with total registered capital for new funds reaching CNY 412.1bn in 2024, down 40% year-on-year. Junyan Fan, a partner of Zhonglun W&D, noted that high net worth individuals (HNWIs) have become cautious and listed corporates are now subject to stricter regulations around information disclosure, and guidance funds have been curtailed.

“Government-guided funds below the county level have been suspended, and repeated establishment of the same type of funds by the same government entity is prohibited to avoid resource waste,” Fan said.

When local LPs are willing to participate, they have specific demands, typically fee cuts and customised reporting and compliance. Management fees, which reached 2.5% in certain cases, are being pushed down aggressively by all investors. Industry participants cite 0.5% as a common rate. For large funds of more than CNY 100bn in size, it might be as low as 0.05%.

LPs are increasingly demanding that fees are based on called capital rather than committed capital.

Oriza FoFs doesn’t actively push for fee cuts, recognising that GPs need sufficient resources to focus on performance. Ultimately, though, it follows market practice. “If over half of LPs in a fund adopt paid-in management fee approach, or over half the LPs are state-owned capital, we would have to align with SOE compliance requirements,” said Yarong La, a partner of Oriza.

While these discounts are already putting pressure on budgets, GPs aren’t well-positioned to fight back – especially if they are turning to renminbi funds because of difficulties in the US dollar space.

One VC investor is in this position. He observed that investor relations costs are twice as high as they would be for managing the equivalent amount in US dollars. For example, local LPs often want GPs to follow customised reporting templates, whereas international LPs accept standardised frameworks.

“Tier-one GPs like Qiming have already lowered targets for their latest funds versus previous vintages,” the VC investor added. “I see no reason to expect larger fund sizes for us. Our current focus is team survival.”

Where’s the line?

The overarching question is the extent to which a manager is willing to compromise to get traction on a fundraise. Giving ground on fees is one issue; giving up investment autonomy is another. Oceanpine Capital, for example, has rejected some government-linked capital because it came with highly restrictive investment provisions or demands for a seat on the investment committee.

Global managers tend to avoid co-GP arrangements with local partners due to cultural and investment style differences, several lawyers observed. CBC’s tie-up with Beijing Shunxi is described as more like a separately managed account (SMA) than a co-GP structure. However, it is still considered unusual because Beijing Shunxi’s status as a platform controlled by the Beijing government.

“This isn’t a purely market-oriented fund. The Beijing government has significant influence over the fund’s overall strategy, pipeline development, and asset selection. Compared to funds they manage independently, managers may have limited autonomy here,” one lawyer added.

Beijing Shunxi’s primary objective is to channel capital to managers that align with its target sectors. It is not the only entity to operate in this way, and government-backed LPs in different markets vary not only in terms of negotiating power but also in their priorities and approaches to negotiation.

“While you can’t provide return guarantees, many SOE LPs still expect exit arrangements under special circumstances through side letters,” said Yaqi Huang, a partner at Lifeng Partners. “They will also closely examine your exit track record and compliance history across previous investments.”

PAG’s first close of CNY 3.1bn – against an overall target of CNY 3bn – was anchored by SOEs such as Suzhou New District Hi-Tech Industrial and Suzhou International Development Venture Capital. Other LPs include CICC Capital and insurance companies, according to data provider Qichacha.com.

L Catterton has raised over CNY 2bn to date for two renminbi funds anchored by the municipal governments of Chengdu and Guangzhou, respectively. Fund-of-funds and corporates also participated. There is also an international strategic investor that committed capital through the Qualified Foreign Limited Partnership (QFLP) regime.

L Catterton plans to continue raising capital onshore by working with SOEs in different cities, according to a source familiar with the situation. Its consumer sector focus is seen as well aligned with government policies intended to boost household spending.

The likes of Glory Ventures, Highlight Capital (HLC), and Future Capital all expect government-backed LPs to account for ever-larger portions of future renminbi funds. Much like L Catterton, HLC is taking a region-by-region approach. There are local investment mandates, but Steven Wang, the firm’s CEO, estimates that 50%-60% of each corpus can be deployed nationally as the manager sees fit.

The QFLP angle

HLC recently established a USD 100m QFLP vehicle in Chongqing in preparation for the imminent launch of its fifth renminbi fund. This is a means of satisfying demands from local governments for foreign direct investment. For every USD 1 in the QFLP structure, they might commit USD 0.50 from government coffers to the renminbi fund, though lawyers warn there is no formal written policy.

Vertex Ventures China closed its second renminbi fund on CNY 3.5bn in 2023 with significant support from SOEs based in Xiamen. A year earlier, the manager established a QFLP entity in the city. Offshore investors, including Temasek Holdings, Vertex’s parent, accounted for 70% of the corpus, a much higher percentage than in Fund I. Vertex declined to comment on fundraising.

“If foreign capital can help local governments to meet their FDI targets, authorities are often willing to invest in renminbi funds,” said Lifeng’s Huang. “Many US dollar fund managers nowadays leverage this advantage by utilising their US dollar fund as an anchor LP through QFLP arrangements. This makes their renminbi fundraising relatively easier.”

Ultimately, these relationships are built on trust. Gloria Gao, a partner at Future Capital, observed that once GPs demonstrate they can deliver on promises, government LPs become more comfortable and may relax performance requirements and other terms for subsequent commitments.

“When trust is low between GPs and LPs, both sides tend to impose increasingly stricter terms. Commercial LPs also grow concerned, fearing the tougher requirements demanded by government investors might distort the GP’s investment decisions. The optimal approach is to avoid being overly aggressive,” Gao added.

Oriza FoFs, one of few commercially oriented fund-of-funds active in the market, addresses such concerns by segregating LPs. Commercial LPs feature in its flagship funds; those with non-financial objectives have SMAs. Last year, it secured a corporate VC fund-of-funds mandate from Xiamen Free Trade Zone Government, with the government contributing 90% of the initial allocation of CNY 1bn.

Oriza’s fourth flagship fund closed on CNY 9.76bn, a near tenfold increase on Fund I. According to La, scale enables the firm to deliver stable returns, and local LPs attach enough importance to being volatility-free that Oriza can avoid customisation around performance and reporting.

“Fund-of-funds may not be able to deliver the highest return, but we consistently provide relatively lower-risk exposure with competitive performance,” La added.

Enticing insurers

Insurance companies are among the most prominent commercial LPs, for Oriza and the wider industry. Private equity managers must meet several qualifying criteria: minimum registered capital of CNY 100m, at least CNY 3bn in assets under management (AUM), and teams of no less than 10 investment professionals with three or more successful exits between them.

VCs are not subject to the AUM requirement, but there are other stipulations, such as a minimum 3% GP commitment to each fund. Insurers are also barred from backing VC funds being raised by first-time managers. Even PE players often wait until Fund II before targeting these LPs because investment thresholds are prohibitively high.

“Unless the fund size is large enough – a first close with at least CNY 3bn in paid-in capital – these allocations remain inaccessible,” said Shelley Wang, a partner at JunHe Law Offices.

“However, once you satisfy all requirements – from regulatory compliance to commercial considerations like distributions – and break into this capital channel, you can probably raise capital from multiple insurance companies rather than being limited to a single one.”

Indeed, DCP Capital’s second renminbi fund featured the likes of Ping An Life Insurance, Ping An Health Insurance, AIA Group, MetLife, Manulife-Sinochem Life Insurance, and HSBC Life, Qichacha.com shows. PAG is currently in discussions with multiple insurers, according to a source familiar with the matter. Its first close is above the CNY 3bn perceived threshold.

Industry participants observe that Chinese insurers seek exposure to high-quality assets with stable periodical cash distributions. This means infrastructure is favoured over venture capital, and there might be demands for side letter provisions allowing prioritised distributions.

Nevertheless, Eric Xin, a senior partner at Trustar Capital, has noticed increasing interest in private equity among mid-level managers at insurance companies. Trustar is looking to foster trust through investor education and information sharing, but Xin believes more could be done from a structuring perspective to facilitate timely distributions to insurance LPs.

“There is significant onshore capital available, but GPs must understand the varying demands of different LPs and tailor fund products accordingly,” Xin said.

Corporates to colleges

Trustar is also keen to work with corporate LPs, with Xin noting a preference for straightforward single-asset project funds rather than complex quasi-equity financing solutions that attract more regulatory scrutiny. Listed corporates must also comply with disclosure obligations.

A handful of international corporates are still willing to back renminbi funds. Cathay Capital is one of the most prolific actors in this space, persuading auto parts supplier Valeo to anchor an automotive-focused fund and Total to do the same for an energy fund. More recently, it has won support from L’Oréal and Kering for a consumer fund and from Sanofi for a biotech mandate.

Others are now following suit. Last year, Porsche committed capital to a CICC Capital-managed vehicle dedicated to new energy and smart automotive technologies.

Over 25 listed companies appear in the LP rosters for Glory Ventures’ three renminbi funds. Jerry Bai, a founding partner at the firm, observed that fund commitments are tiny in the context of corporate balance sheets, but GPs often find themselves competing for allocations with the internal investment arms of these companies. Demonstrating strategic value beyond financial returns is key.

Moreover, strategic investors have raised the bar in response to macroeconomic uncertainty. HLC recently closed a CNY 300m angel fund anchored by the Nanjing government guidance fund and local SOEs. Corporates such as Hong Kong-listed Viva Biotech and BrightGene also took part, largely because of their longstanding relationships with HLC as portfolio companies in earlier funds.

“In the past, listed companies might have been swayed by persuasive pitches. Today, their top priority is strategic discipline – ensuring every investment directly supports their main business objectives,” said HLC’s Wang. “Companies tend to work with GPs they know and trust. In the current environment, reliable relationships have become even more valuable.”

Other pockets of capital include university-backed fund-of-funds launched by the likes of Tsinghua University, Fudan University, and Shanghai Jiao Tong University (SJTU). These are not designed in the mould of US-style university endowments; they mainly focus on commercialising technological breakthroughs and write relatively small cheques in the tens of millions of renminbi range.

For Glory’s Bai, winning university support is more about recognition. Glory counts SJTU as an LP. Bai, a Fudan graduate, is currently serving as a mentor in his alma mater’s technology transformation programme in the hope that it may lead to a fund commitment.

NSSF sits at the other end of the spectrum with USD 424bn in AUM and an alternatives allocation of about 14%. It has backed over 50 renminbi funds over the past two decades and claims relationships with CICC Capital, Hillhouse Capital, Legend Capital, CDH Investments, Boyu Capital, and Trustar. NSSF expanded into SMAs last year, awarding mandates to Shenzhen Capital Group and IDG Capital.

It is also a longstanding supporter of Oriza FoFs. While NSSF handles large-scale direct investments and commitments to blue-chip GPs internally, it relies on Oriza for exposure to small to mid-size GPs.

“Given the current market emphasis on early-stage and smaller investments, some LPs look to fund-of-funds like ours to serve as market scouts – providing access to emerging GPs, cutting-edge projects, and innovative investment model they couldn’t otherwise reach,” said Oriza’s La, who declined to comment on specific LPs.

Dollar not dead

China’s institutional LP base remains relatively thin, which means that raising a renminbi fund of any meaningful size is contingent on support from government-linked investors. Given ongoing challenges on the US dollar fund side, more country managers will likely agree to the compromises attached to these commitments as they look to preserve their franchises.

However, this should be interpreted as the endgame for China-focused US dollar funds. Oriza FOFs TTGG Ventures, Soul Capital, TH Capital, and Shangqi Hengxu are part of a phalanx of managers that have raised their first offshore funds or are looking to launch vehicles.

China’s lack of institutional depth is the primary driving factor; international LPs are regarded as more patient, sophisticated, and stable than their local peers. They may also serve as a bridge between Chinese GPs and the world, facilitating global expansion by portfolio companies and helping managers access cross-border opportunities.

Future Capital believes operating US dollar and renminbi strategies in parallel allows it to pick the best of early-stage investments across different market and sector cycles. A US dollar-only approach, for example, would have missed out on the nascent aerospace materials industry, which could only be accessed via local currency funds.

“Similarly, in AI [artificial intelligence], the truly early-stage opportunities appeared between 2021 and 2023 when most promising AI start-ups incorporated overseas,” said Gao. “Without US dollar capability, we would have been locked out of these foundational investments.”