China’s Yuexiu Industrial Fund, a private market investor that has committed to funds managed by HongShan and CICC Capital, is planning to launch a 2-billion-yuan ($274.2 million) new secondary fund.
Yuexiu Industrial Fund, a subsidiary of the publicly listed Guangzhou Yuexiu Capital Holdings Group, said in a statement that the new secondary vehicle will help the firm “speed up investments in high-quality assets, optimise asset allocations, and improve capital recovery from fund investments”.
Unlike primary funds, secondary funds buy stakes in private equity (PE) funds from existing investors, or limited partners (LPs), who want to exit. As their targets are mostly funds near the end of their lifecycles, secondary funds have grown in popularity as a way to return investor capital sooner and improve liquidity.
Yuexiu Industrial Fund’s move to set up a new secondary fund comes alongside China’s fast-maturing PE secondary market. In 2022, a record 405 PE secondary deals worth a combined 102.1 billion yuan ($14 billion) were completed in China. This was 52.9% higher than the previous year, according to a June report by ZERONE, a Chinese fintech firm that offers financial advisory services focusing on PE secondaries.
Founded in 2011, Yuexiu Industrial Fund specialises in fund-of-funds (FOF) investments with additional businesses covering direct equity financing and mezzanine financing. Its total assets under management (AUM) crossed 100 billion yuan ($13.7 billion) by the end of 2022.
The firm’s secondary fund strategy focuses on private market opportunities in the fields of technology, healthcare, and consumption, covering segments such as artificial intelligence (AI), semiconductors, digital economy, novel drug development, medical devices, and new retail. It invests in fund expansions, transactions of LP commitments as well as underlying assets, and continuation funds.
To date, it has allocated over 5 billion yuan ($685.4 million) to funds managed by CITIC Private Equity (CPE), CDH Investments, Firstred Capital, as well as China’s government guidance fund manager SDIC Unity Capital and state-owned automaker GAC Group-owned GAC Capital.
The firm’s network of general partners also includes HongShan, which was previously known as Sequoia Capital China; and CICC Capital, a unit of Chinese investment bank China International Capital Corp Ltd.