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1. Members registered in this website must abide by the provisions on the administration of Internet electronic announcement service, and shall not publish information such as defamation of others, invasion of others' privacy, infringement of others' intellectual property rights, spread of viruses, political speech, commercial information, etc.
2, in all the articles published in the site, the site has the final right to edit, and reserve the right to print or publish to a third party, if your information is not complete, we will have the right to use your work published in the site without any notice.
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China Officially Integrates Fund of Funds into its Rural Modernization Plan

Zhang Weilun Updated April 11, 2021

In February, China’s central government unveiled the "No. 1 Document" for 2021, emphasizing industrial investments via rural revitalization funds (RRF) in an effort to modernize its countryside. Close on the document’s heels, China updated its poverty alleviation office to the rural vitalization body, taking a firm step further than poverty reduction to reduce the urban-rural divide.

It’s unprecedented for RRFs to be written in the "No. 1 Document". As the file recognized, the Ministry of Finance and market players both must play their own irreplaceable part in this type of market-oriented fund. Financial support from the central government provides a safety net for fund launching and investment, allowing the private sector to take the initiative thanks to guaranteed incentives. The market mechanism, also inseparable from fund operation, screens the most professional and profitable investment managers who have a reassuring risk/return profile and resource advantages.

The move by China is an explicit commitment to advance its revitalization plans and will have significant implications across the country’s economic and geographical landscape. Yet in a surprising prophecy of the national strategy, an RRF with similar intentions was established two years before the release of the "No. 1 Document".

RFUND, named the Guangzhou Rural Revitalization Fund in Chinese, was established in July 2018 and started with managed assets of CNY5 billion ($762.5 million dollars). It adopts a fund of funds strategy, holding stakes in Chinese corporate venture capital (CVC) and regional government-guided funds, but it also conducts direct investments. 

To find out more about RFUND and China’s current revitalization efforts, FOF Weekly (FW) interviewed Mao Jie, President of RFUND. 

FW: This year, the central government has taken a series of actions for rural revitalization, like the Document and the new government body. How is this meaningful for RRFs?

Mao Jie: RRFs can now embrace a major window of opportunity. China has eliminated poverty in 2021, but the question is now how to prevent people from falling into that difficulty again. The rural revitalization campaign is an answer. The action that the government has already taken has started a new chapter in China’s rural history from the policy and the market aspect: deploying RRF, the market-based innovative vehicle, can optimize resource allocation.

Equity investment was mainly about sci&tech companies in emerging industries (e.g., biomedicine, new-generation information technology, manufacturing transformation, etc.). Now, from a RRF prospective, it has to consider other business forms for the integration of primary, secondary and tertiary industries and consumption penetration to less developed areas from first- or second-tier cities and so on. 

FW: “No.1 Document” mentioned that fiscal spending should play a guiding role to support establishing market-oriented RRFs. Does this mean that the Ministry of Finance will be the dominant force of RRFs?

Mao Jie: Government finance and market mechanism are both emphasized in the Document.

In today’s China, government finance must “hold the bottom” of rural revitalization given agricultural issues in its current development stage and the historical legacy of urban-rural division. Funds from the government and state-owned enterprises (SOEs) usually embody the will of public policies and hence can guide businesses and private capital to join in with reassurance. Government funds typically lead long-run trends, so they are less demanding in short-term profits and thus can concede profit percentages to private capital contributors. 

FW: What kind of market players or private capital should an RRF look for?

Mao Jie: The first goes to industrial capital. Some industry shapers run businesses in niche markets relevant to today’s topic, fitting themselves naturally into the rural revitalization puzzle. Sci&tech companies in the modern agricultural space specializing in planting, breeding and environmental protection are often willing to establish various specialized funds with local governments, and market-oriented RRFs are no exception. This group of actors is highly economically motivated and is likely to become the mainstream partner in the future. 

The second is capital from other businesses, especially those located in the target area and which are active players in local economic development. They can be well-anchored and deep-rooted investors because rural revitalization is highly geographically based: counties are basic units while integrated urban-rural areas are practically regarded as administrative units. RRF-backed portfolios take a long time to incubate and deliver profits. But it shouldn’t be a problem for those investors since they have deep-rooted interest in that area anyway. If their executives desire to become “rural benefactors”, these businesses can be a good source of seed funds. 

With professional fund managers proving their competence, the national financial policy delivering inclusive benefits, and the whole policy system taking shape, insurance or assurance funds, as well as some policy banks, commercial banks, rural credit cooperatives and other institutions will also participate in the RRFs.

In fact, RRFs have provided an opportunity for asset owners to invest down to the less developed market, moving from first and second-tiered cities.

FW: As an investment tool, how will RRFs contribute to rural financial reform?

Mao Jie: RRFs, as market-run equity investment funds, are useful for rural financial innovation in two regards. First, investment funds are pros in industry development and fund management who can go first and blaze the trail for the modern financial system to follow.

Second, RRFs can motivate socially responsible investing. Ecological and environmental governance is a significant component of rural revitalization, so socially responsible and impact investing is very important for RRFs to hit the balance of different objectives. The fund of funds strategy is particularly influential in this regard. 

FW: What have been the difficulties in the early exploration of RRF investments? 

Mao Jie: The challenges are threefold. First, RRF, as a novel and innovative concept, is still slightly unclear when it comes to policy and regulation in practice. This requires fund managers to continue to communicate with government departments. 

The second is centered on returns. Private capital in RRFs still expects returns, while some rural revitalization projects feature substantial uncertainty and a long holding period, so RRF managers should put in more professional effort to balance the financial and social benefit for private capital contributors. 

The third challenge is the team. RRF, as an innovative operation platform, has its key in the team, which requires professionals with excellent specialties, experience and background resources. But most of those eligible are densely populated in the leading investment companies, banks, SOEs or government institutions. The question is how to bring these talents to rural areas, especially to the counties.

FW: What suggestions do you have for RRFs as a pioneering fund manager?

Mao Jie: In two years of exploration, we have gradually evolved from a fund manager funded by the government and private capital to a more comprehensive platform featuring an industry-finance synergy. Our experience is to invest in ag-tech, ecological agriculture and animal husbandry.

In the future, we will pay more attention to the fund’s social benefits and developing socially responsible investment. Through various types of public welfare activities, social campaigns, and green finance practice, we strive to play a leading role in and set the standard for promoting the implementation of the rural revitalization strategy.

RRF managers should always remain true to their hearts, feel deeply connected to rural revitalization, and be well-armed with knowledge to maintain their motivation.

Mechanism innovation is also necessary. Capital contribution, be it from the public or private sector, requires a governance mechanism of the fund management company. Otherwise, there would be more than one commander and all kinds of deadlocks.

Finally, deep-rootedness and resilience are indispensable. Managing RRFs is no easy task, and it requires long-term persistence and exploration. Rural revitalization is a new era and also part of the nation’s development, so we should align with the times and not allow difficulties or temptations to dissuade us.


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CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
FOF WEEKLY Account terms of service
1. Members registered in this website must abide by the provisions on the administration of Internet electronic announcement service, and shall not publish information such as defamation of others, invasion of others' privacy, infringement of others' intellectual property rights, spread of viruses, political speech, commercial information, etc.
2, in all the articles published in the site, the site has the final right to edit, and reserve the right to print or publish to a third party, if your information is not complete, we will have the right to use your work published in the site without any notice.
3. During the registration process, you will choose the registration name and password. The choice of registration name shall comply with laws, regulations and social ethics. You must keep your password confidential and you will be responsible for all activities that take place under your registered name and password.
Already have an account? Sign in!
E-mail adress

China Officially Integrates Fund of Funds into its Rural Modernization Plan

Zhang Weilun Updated April 11, 2021

In February, China’s central government unveiled the "No. 1 Document" for 2021, emphasizing industrial investments via rural revitalization funds (RRF) in an effort to modernize its countryside. Close on the document’s heels, China updated its poverty alleviation office to the rural vitalization body, taking a firm step further than poverty reduction to reduce the urban-rural divide.

It’s unprecedented for RRFs to be written in the "No. 1 Document". As the file recognized, the Ministry of Finance and market players both must play their own irreplaceable part in this type of market-oriented fund. Financial support from the central government provides a safety net for fund launching and investment, allowing the private sector to take the initiative thanks to guaranteed incentives. The market mechanism, also inseparable from fund operation, screens the most professional and profitable investment managers who have a reassuring risk/return profile and resource advantages.

The move by China is an explicit commitment to advance its revitalization plans and will have significant implications across the country’s economic and geographical landscape. Yet in a surprising prophecy of the national strategy, an RRF with similar intentions was established two years before the release of the "No. 1 Document".

RFUND, named the Guangzhou Rural Revitalization Fund in Chinese, was established in July 2018 and started with managed assets of CNY5 billion ($762.5 million dollars). It adopts a fund of funds strategy, holding stakes in Chinese corporate venture capital (CVC) and regional government-guided funds, but it also conducts direct investments. 

To find out more about RFUND and China’s current revitalization efforts, FOF Weekly (FW) interviewed Mao Jie, President of RFUND. 

FW: This year, the central government has taken a series of actions for rural revitalization, like the Document and the new government body. How is this meaningful for RRFs?

Mao Jie: RRFs can now embrace a major window of opportunity. China has eliminated poverty in 2021, but the question is now how to prevent people from falling into that difficulty again. The rural revitalization campaign is an answer. The action that the government has already taken has started a new chapter in China’s rural history from the policy and the market aspect: deploying RRF, the market-based innovative vehicle, can optimize resource allocation.

Equity investment was mainly about sci&tech companies in emerging industries (e.g., biomedicine, new-generation information technology, manufacturing transformation, etc.). Now, from a RRF prospective, it has to consider other business forms for the integration of primary, secondary and tertiary industries and consumption penetration to less developed areas from first- or second-tier cities and so on. 

FW: “No.1 Document” mentioned that fiscal spending should play a guiding role to support establishing market-oriented RRFs. Does this mean that the Ministry of Finance will be the dominant force of RRFs?

Mao Jie: Government finance and market mechanism are both emphasized in the Document.

In today’s China, government finance must “hold the bottom” of rural revitalization given agricultural issues in its current development stage and the historical legacy of urban-rural division. Funds from the government and state-owned enterprises (SOEs) usually embody the will of public policies and hence can guide businesses and private capital to join in with reassurance. Government funds typically lead long-run trends, so they are less demanding in short-term profits and thus can concede profit percentages to private capital contributors. 

FW: What kind of market players or private capital should an RRF look for?

Mao Jie: The first goes to industrial capital. Some industry shapers run businesses in niche markets relevant to today’s topic, fitting themselves naturally into the rural revitalization puzzle. Sci&tech companies in the modern agricultural space specializing in planting, breeding and environmental protection are often willing to establish various specialized funds with local governments, and market-oriented RRFs are no exception. This group of actors is highly economically motivated and is likely to become the mainstream partner in the future. 

The second is capital from other businesses, especially those located in the target area and which are active players in local economic development. They can be well-anchored and deep-rooted investors because rural revitalization is highly geographically based: counties are basic units while integrated urban-rural areas are practically regarded as administrative units. RRF-backed portfolios take a long time to incubate and deliver profits. But it shouldn’t be a problem for those investors since they have deep-rooted interest in that area anyway. If their executives desire to become “rural benefactors”, these businesses can be a good source of seed funds. 

With professional fund managers proving their competence, the national financial policy delivering inclusive benefits, and the whole policy system taking shape, insurance or assurance funds, as well as some policy banks, commercial banks, rural credit cooperatives and other institutions will also participate in the RRFs.

In fact, RRFs have provided an opportunity for asset owners to invest down to the less developed market, moving from first and second-tiered cities.

FW: As an investment tool, how will RRFs contribute to rural financial reform?

Mao Jie: RRFs, as market-run equity investment funds, are useful for rural financial innovation in two regards. First, investment funds are pros in industry development and fund management who can go first and blaze the trail for the modern financial system to follow.

Second, RRFs can motivate socially responsible investing. Ecological and environmental governance is a significant component of rural revitalization, so socially responsible and impact investing is very important for RRFs to hit the balance of different objectives. The fund of funds strategy is particularly influential in this regard. 

FW: What have been the difficulties in the early exploration of RRF investments? 

Mao Jie: The challenges are threefold. First, RRF, as a novel and innovative concept, is still slightly unclear when it comes to policy and regulation in practice. This requires fund managers to continue to communicate with government departments. 

The second is centered on returns. Private capital in RRFs still expects returns, while some rural revitalization projects feature substantial uncertainty and a long holding period, so RRF managers should put in more professional effort to balance the financial and social benefit for private capital contributors. 

The third challenge is the team. RRF, as an innovative operation platform, has its key in the team, which requires professionals with excellent specialties, experience and background resources. But most of those eligible are densely populated in the leading investment companies, banks, SOEs or government institutions. The question is how to bring these talents to rural areas, especially to the counties.

FW: What suggestions do you have for RRFs as a pioneering fund manager?

Mao Jie: In two years of exploration, we have gradually evolved from a fund manager funded by the government and private capital to a more comprehensive platform featuring an industry-finance synergy. Our experience is to invest in ag-tech, ecological agriculture and animal husbandry.

In the future, we will pay more attention to the fund’s social benefits and developing socially responsible investment. Through various types of public welfare activities, social campaigns, and green finance practice, we strive to play a leading role in and set the standard for promoting the implementation of the rural revitalization strategy.

RRF managers should always remain true to their hearts, feel deeply connected to rural revitalization, and be well-armed with knowledge to maintain their motivation.

Mechanism innovation is also necessary. Capital contribution, be it from the public or private sector, requires a governance mechanism of the fund management company. Otherwise, there would be more than one commander and all kinds of deadlocks.

Finally, deep-rootedness and resilience are indispensable. Managing RRFs is no easy task, and it requires long-term persistence and exploration. Rural revitalization is a new era and also part of the nation’s development, so we should align with the times and not allow difficulties or temptations to dissuade us.