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CHINA-BASED
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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.
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China Tries ESG Investment to Alleviate Poverty, and Private Equity Funds Are Onboard

Xiong Qiao Updated December 09, 2020

Chinese officials have long puzzled over how to lift people from poverty in a way that is both effective and sustainable. Recently, a tentative effort to replace subsidies with investment in poverty-stricken areas is proving a promising solution. And one company, SDIC Chuangyi, is leading the way.

A subsidiary of the State Development and Investment Company (SDIC), SDIC Chuangyi is a market-based private equity (PE) funds manager that specializes in poverty alleviation. And with over CNY34 billion ($5.2 billion) in asset under management (AUM), it is setting a good example for other interested fund managers to put the ‘S’ in ESG investment.

Industry Investment Funds Turn to ESG

For their 14th five-year plan, the CPC has promised more practical and forceful measures to alleviate poverty and improve prosperity for all. SDIC Chuangyi, a manager of government-guided poverty alleviation funds, plays a key role in this cause. FOF Weekly spoke to their chairman, Wang Weidong, in a special interview. He had this to say:

"As a whole, SDIC Chuangyi investment staff are socially conscious, well-educated, professional, responsible and diligent. They are financiers who value political altruism, but they are also altruists who understand finance."

SDIC Chuangyi is funded by such limited partners (LP) as government departments and state-owned enterprises (SOE), providing their political advantage of top-down planning and industry resources respectively.

But with these boons come constraints. These LPs contribute all their commitments in one go, with a fund duration of 15 years and a project investment period of 5-7 years. Yet the investment location and industries are strictly centered on poverty alleviation.

Investing in poverty-stricken areas means facing immature enterprises in an equally immature business environment. And that poses great challenges. As Weidong explains,

"The projects are poor quality and below investment thresholds. In the beginning, project sourcing mainly relies on the recommendation of local poverty alleviation offices. Most recommended are SMEs or even family businesses in poor areas lacking standard operation and management, especially in financial management and risk control. So often we spend many human, material and financial resources on due diligence research, but are forced to give up the investment. So low efficiency and high risk bothered us in the early period."

Besides investment, post-investment management (PIM) is another difficulty in the early stage.

"There is no ready-made model of success to replicate or learn from. These industry investment funds differ from purely market-oriented funds, which require only high economic gains. And they also differ from the general poverty alleviation funds guided by the government’s fiscal department, which achieve social benefits by donations and assistance. The funds we manage require us to conduct market-oriented fund investments to help poor areas develop industries, thus delivering BOTH social AND economic benefits.

We had no sound system for fundraising, investment, PIM or exit; our fund governance, risk control, audit and monitoring system were undeveloped; and our social benefit management was still under exploration."

But they were highly successful nonetheless. As of November 2020, the four funds SDIC Chuangyi manages aggregated CNY34.725 billion ($5.3 billion), with more than 160 invested projects and over CNY34 billion ($5.2 billion) total invested capital. In the portfolio, 72 projects in impoverished areas comprised an invested amount of more than CNY12 billion ($1.8 billion), bringing 630,000 workplaces CNY5.3 billion ($810.3 million) in income for the employees and CNY3.9 billion ($596.3 million) in tax revenue per year for the local governments. 

The SDIC Chuangyi Investment Toolkit

SDIC Chuangyi has been improving its investment toolkit and developed a five-pronged approach:

1)    Take advantage of the long-term stability and industry resources of state-owned capital;

2)    Focus on key industries such as modern agriculture, high-end processing and manufacturing, mineral resources development, medicine and healthcare, agricultural products production and marketing, and industrial finance;

3)    Start from leading businesses, be they funded by state-owned, private or foreign capital;

4)    Optimize your investment portfolio continuously to accommodate both social and economic benefits;

5)    Set up sub-funds in local regions to leverage CNY280 billion ($42.8 billion) private capital in joint efforts for poverty alleviation.

To ensure these industry investment funds really take root in local areas and bear fruit, SDIC Chuangyi has fully tapped the potential of ‘interest linkage’. That means creating two types of connection. First, direct connections through production, employment, income-producing assets (land transfer), etc. And second, indirect ones through paying taxes and fees, investing in infrastructure construction for business operation, protecting the environment, encouraging local people to start their own businesses, etc.

One-On-One Post-Investment Management

With invested projects largely located in poverty-stricken areas, PIM becomes an unavoidably tough issue for SDIC Chuangyi. Yet not only has it established its own PIM mechanism, but it has also taken various measures to enable the investees to manage themselves.

These measures include setting rules and regulations, training employees, and importing financial consultants from accounting firms. And it has helped enterprises in corporate governance structure, financial accounting management, production and operation, multi-dimensional risk monitoring and IT control, therefore factoring risk control into the whole process.

Take the breeding company in Tianpeng, Yunnan province, as an example. It typifies the blurry line between family and business: it’s weak in financial management, income and cost accounting, independency between the parent company and its wholly owned subsidiary, and internal control. After investment, SDIC Chuangyi hired financial consultants for the company to review asset inventory and record accounting, and at the same time assisted the enterprise to build internal control systems. Financial consultants continue to provide consulting services for the enterprise on a daily basis.

Creating a Standard Operating Procedure

If what SDIC Chuangyi has done can generate a standard operating procedure, it should be named “The Five Step”:

1)    Goal: alleviate poverty in certain areas through market-oriented industry investment funds;

2)    Principles: assist the poor while securing returns and exits;

3)    Safeguards: fund governance structure, risk control, and audit and monitoring systems;

4)    Entities: industry investment funds, invested firms, resources in poor areas and impoverished segments of the population;

5)    Requirements: standard investment decision-making, specialist team members, information-based operational management, value-added in PIM, and communication of brand image.

These steps are at the heart of SDIC Chuangyi. As Weidong told FOF Weekly,

"To achieve both economic and social benefits will depend on investment, PIM and exit. Only high-quality, sustainable projects under efficient management can help the poor areas generate fresh blood by themselves, develop local economies and thus achieve social benefits, whereas exits are decisive in realizing economic benefits.

SDIC Chuangyi regards the social benefits of potential projects as an important criterion for selecting investment objects. To this end, we entrust Peking University, Renmin University of China, Beijing Normal University and Chinese Academy of Agricultural Sciences to conduct a comprehensive evaluation of the social benefits of investment projects. We have established a data collection and evaluation system for social benefits of investment projects, factoring poverty alleviation into all the stages of project initiation, investment and post investment management."

With their remarkable success and noble aims, SDIC Chuangyi has created a model that other companies can follow suit.


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REGISTER NOW !
CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
E-mail adress
Password
l read and agree to
Terms&Conditions
Create a new account Sign up!
Forget Password
CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
Name
Surname
E-mail address
Password
Confirm password
l read and agree to
Terms&Conditions
Already have an account? Sign in!
Please go to the mailbox to approve the registration
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 Tries ESG Investment to Alleviate Poverty, and Private Equity Funds Are Onboard

Xiong Qiao Updated December 09, 2020

Chinese officials have long puzzled over how to lift people from poverty in a way that is both effective and sustainable. Recently, a tentative effort to replace subsidies with investment in poverty-stricken areas is proving a promising solution. And one company, SDIC Chuangyi, is leading the way.

A subsidiary of the State Development and Investment Company (SDIC), SDIC Chuangyi is a market-based private equity (PE) funds manager that specializes in poverty alleviation. And with over CNY34 billion ($5.2 billion) in asset under management (AUM), it is setting a good example for other interested fund managers to put the ‘S’ in ESG investment.

Industry Investment Funds Turn to ESG

For their 14th five-year plan, the CPC has promised more practical and forceful measures to alleviate poverty and improve prosperity for all. SDIC Chuangyi, a manager of government-guided poverty alleviation funds, plays a key role in this cause. FOF Weekly spoke to their chairman, Wang Weidong, in a special interview. He had this to say:

"As a whole, SDIC Chuangyi investment staff are socially conscious, well-educated, professional, responsible and diligent. They are financiers who value political altruism, but they are also altruists who understand finance."

SDIC Chuangyi is funded by such limited partners (LP) as government departments and state-owned enterprises (SOE), providing their political advantage of top-down planning and industry resources respectively.

But with these boons come constraints. These LPs contribute all their commitments in one go, with a fund duration of 15 years and a project investment period of 5-7 years. Yet the investment location and industries are strictly centered on poverty alleviation.

Investing in poverty-stricken areas means facing immature enterprises in an equally immature business environment. And that poses great challenges. As Weidong explains,

"The projects are poor quality and below investment thresholds. In the beginning, project sourcing mainly relies on the recommendation of local poverty alleviation offices. Most recommended are SMEs or even family businesses in poor areas lacking standard operation and management, especially in financial management and risk control. So often we spend many human, material and financial resources on due diligence research, but are forced to give up the investment. So low efficiency and high risk bothered us in the early period."

Besides investment, post-investment management (PIM) is another difficulty in the early stage.

"There is no ready-made model of success to replicate or learn from. These industry investment funds differ from purely market-oriented funds, which require only high economic gains. And they also differ from the general poverty alleviation funds guided by the government’s fiscal department, which achieve social benefits by donations and assistance. The funds we manage require us to conduct market-oriented fund investments to help poor areas develop industries, thus delivering BOTH social AND economic benefits.

We had no sound system for fundraising, investment, PIM or exit; our fund governance, risk control, audit and monitoring system were undeveloped; and our social benefit management was still under exploration."

But they were highly successful nonetheless. As of November 2020, the four funds SDIC Chuangyi manages aggregated CNY34.725 billion ($5.3 billion), with more than 160 invested projects and over CNY34 billion ($5.2 billion) total invested capital. In the portfolio, 72 projects in impoverished areas comprised an invested amount of more than CNY12 billion ($1.8 billion), bringing 630,000 workplaces CNY5.3 billion ($810.3 million) in income for the employees and CNY3.9 billion ($596.3 million) in tax revenue per year for the local governments. 

The SDIC Chuangyi Investment Toolkit

SDIC Chuangyi has been improving its investment toolkit and developed a five-pronged approach:

1)    Take advantage of the long-term stability and industry resources of state-owned capital;

2)    Focus on key industries such as modern agriculture, high-end processing and manufacturing, mineral resources development, medicine and healthcare, agricultural products production and marketing, and industrial finance;

3)    Start from leading businesses, be they funded by state-owned, private or foreign capital;

4)    Optimize your investment portfolio continuously to accommodate both social and economic benefits;

5)    Set up sub-funds in local regions to leverage CNY280 billion ($42.8 billion) private capital in joint efforts for poverty alleviation.

To ensure these industry investment funds really take root in local areas and bear fruit, SDIC Chuangyi has fully tapped the potential of ‘interest linkage’. That means creating two types of connection. First, direct connections through production, employment, income-producing assets (land transfer), etc. And second, indirect ones through paying taxes and fees, investing in infrastructure construction for business operation, protecting the environment, encouraging local people to start their own businesses, etc.

One-On-One Post-Investment Management

With invested projects largely located in poverty-stricken areas, PIM becomes an unavoidably tough issue for SDIC Chuangyi. Yet not only has it established its own PIM mechanism, but it has also taken various measures to enable the investees to manage themselves.

These measures include setting rules and regulations, training employees, and importing financial consultants from accounting firms. And it has helped enterprises in corporate governance structure, financial accounting management, production and operation, multi-dimensional risk monitoring and IT control, therefore factoring risk control into the whole process.

Take the breeding company in Tianpeng, Yunnan province, as an example. It typifies the blurry line between family and business: it’s weak in financial management, income and cost accounting, independency between the parent company and its wholly owned subsidiary, and internal control. After investment, SDIC Chuangyi hired financial consultants for the company to review asset inventory and record accounting, and at the same time assisted the enterprise to build internal control systems. Financial consultants continue to provide consulting services for the enterprise on a daily basis.

Creating a Standard Operating Procedure

If what SDIC Chuangyi has done can generate a standard operating procedure, it should be named “The Five Step”:

1)    Goal: alleviate poverty in certain areas through market-oriented industry investment funds;

2)    Principles: assist the poor while securing returns and exits;

3)    Safeguards: fund governance structure, risk control, and audit and monitoring systems;

4)    Entities: industry investment funds, invested firms, resources in poor areas and impoverished segments of the population;

5)    Requirements: standard investment decision-making, specialist team members, information-based operational management, value-added in PIM, and communication of brand image.

These steps are at the heart of SDIC Chuangyi. As Weidong told FOF Weekly,

"To achieve both economic and social benefits will depend on investment, PIM and exit. Only high-quality, sustainable projects under efficient management can help the poor areas generate fresh blood by themselves, develop local economies and thus achieve social benefits, whereas exits are decisive in realizing economic benefits.

SDIC Chuangyi regards the social benefits of potential projects as an important criterion for selecting investment objects. To this end, we entrust Peking University, Renmin University of China, Beijing Normal University and Chinese Academy of Agricultural Sciences to conduct a comprehensive evaluation of the social benefits of investment projects. We have established a data collection and evaluation system for social benefits of investment projects, factoring poverty alleviation into all the stages of project initiation, investment and post investment management."

With their remarkable success and noble aims, SDIC Chuangyi has created a model that other companies can follow suit.