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According to a report by Mercer, a global consulting firm, China's private equity and venture capital market is the second largest in the world, which is attractive to innovative and high-growth companies around the world. The importance of Chinese private equity in global allocation cannot be underestimated. Investors are concerned about: What is the attitude of overseas long-term capital towards the Chinese market? Schroder Investment Group, one of the largest asset management companies in Europe with an asset management scale of US$960 billion (as of the end of 2023), has given the answer. 2024 is the 220th anniversary of the establishment of Schroder Investment Group. This century-old asset management institution has entered the mainland Chinese market for 30 years, and Schroder has been in business with China for more than 160 years. Schroder has always been committed to making its own contribution to the development of China's asset industry. Through more than 200 years of multiple economic cycles, Schroder Investment Group adheres to long-termism and has always maintained continuous competitiveness. Schroder Investment Group recently stated that it is optimistic about the potential and resilience of China's private equity market, especially the value of RMB S transactions. Private equity investment is one of the most effective ways to share the fruits of China's high-quality development.

Schroder Investment Group has many business units in China, such as Schroder Funds, Bocom Schroder Funds, Schroder Bocom Wealth Management, etc. In addition to the public market, Schroder Investment Group has deployed China's non-public market under the Schroder Capital brand, including investments in private equity, real estate, new energy infrastructure and other asset categories.

Helping overseas and domestic investors capture China's high-quality growth opportunities

Schroder Capital's private equity strategy covers fund investment, S-trading, follow-up investment and direct investment. With more than 25 years of experience in the Chinese market, Schroder Capital has formed a private equity fund ecosystem with wide coverage and high quality. Many venture capital and private equity funds that Schroder Capital participated in establishing and incubating in the early stage have grown into industry-leading fund managers.

As one of the largest investors in early-stage and growth-stage USD funds in the Chinese market, Schroder Capital has a large and long-term network of mutual trust among invested fund managers. These resources not only bring high-quality exclusive transaction opportunities and seats on fund advisory committees, but more importantly, Schroder Capital has been able to observe and participate in the development of domestic private equity funds and venture capital companies at the forefront for a long time, and face challenges and go through cycles together.

It is worth mentioning that Schroder Capital is also one of the very few combination fund investment institutions in China's private equity industry that allocates both US dollar and RMB assets.

As early as the beginning of 2020, Schroder Capital completed the registration of private fund managers with the Asset Management Association of China (AMAC) and issued the first QFLP private equity fund in the same year. Combined with the team's more than 20 years of experience in investing in China's US dollar fund market, the vigorous promotion of RMB investment also symbolizes the in-depth development of Schroder Capital in the Chinese market. So far, Schroder Capital manages multiple QFLP private equity funds in China, with strategies covering fund investment, S trading, follow-up investment and direct investment.

China's reform and opening up is a legendary process. Private equity investment not only brings in overseas funds, but also tells this legendary story to the world. Over the past 25 years, Schroder Capital has been introducing the development and prospects of the Chinese market to overseas investors, leading more and more US dollar investors to enter China.

Qian Jun, Head of Private Equity China at Schroder Capital

In terms of China strategy, Qian Jun, head of Schroder Capital Private Equity China, believes that there are three key success factors for investing in China's private equity market: first, the Chinese market should be allocated in the early stages of the industry's development. On the one hand, overseas best practices can be brought to China to help China's private equity industry become more institutionalized. At the same time, it can also participate in the establishment and incubation of funds, build an ecosystem and share the growth dividends; second, it is necessary to establish a local team to combine a global perspective with insights into the Chinese market; third, the paradigm shift in the Chinese market should be planned in advance, especially the formation of the RMB's market dominance.

Layout of the world's second largest private equity market

QFLP stands for Qualified Foreign Limited Partner, which allows foreign institutions to raise funds from overseas and invest in the domestic market. Under the QFLP mechanism, global institutions can deploy domestic private equity investment projects. Relevant data shows that over the past 10 years since the pilot, QFLP projects have blossomed across the country, and the specific implementation methods have been gradually optimized, making it easier for global institutions to deploy domestic private equity markets.

Schroder Capital believes that today, China has become the world's second largest private equity market. Looking back, since the establishment of China New Technology Venture Capital Corporation by multiple state ministries in 1985, China's private equity investment industry has begun; after 2006, as globalization entered the fast lane, the "New Partnership Law" was passed, which also made the limited partnership organization form commonly used by international PE funds possible.

Schroder Capital's first private equity investment in China can be traced back to 1998, when China's venture capital and private equity markets were in their infancy, with early entrepreneurs and venture capital firms ready to go. Schroder Capital established its Beijing office in 2008, combining an international platform with local Chinese private equity investment experts, and was determined to delve deeply into the promising Chinese private equity market.

The widespread popularity of smartphones around 2010 brought about the rise of mobile Internet. In 2015, the concept of "mass entrepreneurship and innovation" began to lead the trend, injecting new impetus into innovation-driven growth. Against this backdrop, the private equity market in China has experienced explosive growth, providing unprecedented opportunities for both companies and investment institutions.

From 2013 to 2017, China's private equity investment experienced significant growth. During this period, a large amount of funds entered China's most promising start-ups at the time. Under the tide of the times, Schroder Capital has steadily become an important player in the industry with its first-mover advantage, the ecosystem it has built, the international vision brought by its global platform, and the market insight of its local team.

In the long run, Schroder Capital has achieved excellent investment performance in China's private equity sector, which not only highlights Schroder Capital's investment strategy and execution capabilities, but also fully demonstrates the significant advantages and effectiveness of private equity investment in long-term investment.

The continuous optimization of the system has undoubtedly laid the foundation for global institutions such as Schroder Capital to expand into China.

On November 15, 2023, the Capital Project Management Department of the State Administration of Foreign Exchange published a column entitled "Steadily promote high-level opening-up in the foreign exchange field and continuously improve the level of cross-border investment and financing facilitation". In the part of "The level of openness of cross-border direct investment continues to improve", it mentioned "steadily and prudently promote cross-border equity investment pilot projects to better support the innovative development of cross-border investment. Carry out foreign exchange management pilot projects for qualified foreign limited partners (QFLP) and qualified domestic limited partners (QDLP) in some regions, support equity investment funds to carry out cross-border industrial and industrial investment, and promote regional financial reform and opening up in an orderly manner."

Three major themes for the Chinese market

Optimistic about RMB S trading

When talking about the prospects of the Chinese market, Schroder Capital believes that, first of all, consumption is the core of China's economic growth, and the policy side regards it as a breakthrough direction for current economic growth. With the rise of the new millennial generation, personalized needs will drive changes in the consumer industry, and high-quality localized brands will usher in development opportunities.

Secondly, small and medium-sized enterprises are the key to "stable growth", and the policy side also directly links them with "innovation", "employment" and "people's livelihood". In the global industrial chain, China has significant comparative advantages in digitalization, intelligence and other fields, and these advantages will become an important part of "new quality productivity".

Furthermore, technological innovation is the focus of China's policies. In recent years, investment in scientific research has increased significantly, and basic research and development funds rank second in the world. In the outline of the country's long-term goals for 2035, science and technology will become China's long-term main line. With the improvement of the competitiveness of domestic enterprises, especially the rapid development of medical devices, new energy and other fields, Schroder Capital has reason to believe that Chinese companies will continue to replace the market share of international brands with better quality and innovative products and services.

In recent years, Schroder Capital has been particularly optimistic about the opportunities for private equity S-share transactions in China. It has set an example through its own actions, and has been active in the buyer's market for RMB S-share transactions, promoting a virtuous cycle of market liquidity.

At this point in time, Schroder Capital said that opportunities and challenges coexist, but Schroder Investments remains confident in the resilience and vitality of the Chinese market. China has the world's largest market, the largest number of middle-income groups, the most concentrated scientific and technological talents, and a long-term and practical economic development policy orientation, which are the solid foundations that continue to drive Schroder Capital to deepen its presence in the Chinese market.

Recently, the General Office of the State Council issued the "Several Policy Measures to Promote the High-quality Development of Venture Capital", proposing 17 specific measures in five major areas. The National Development and Reform Commission stated that on the fundraising side, it will guide insurance funds and other long-term funds to invest in venture capital, expand the pilot scope of direct equity investment by financial asset investment companies, and mobilize qualified social capital to be "patient capital" to solve the problems of "lack of long-term money" and "no rice to cook" in the industry. Schroder Capital's investment philosophy is in line with "patient capital" and is well aware of the power of "patient capital", which will provide long-term and stable financial support for companies in some fields, helping them maintain innovation and sustainable development in the fierce market competition.

Wu Sitian, Chairman of Schroder Investment Group China Affairs, said that Schroder is full of confidence in the development of the Chinese market and will unswervingly promote its development plan in the Chinese market with a professional and pragmatic attitude. Through close cooperation and common growth with the Chinese market, Schroder will provide Chinese investors with better services.

Disclaimer

The securities mentioned above are for reference only and do not constitute any investment or divestment advice.

This document is for informational purposes only and is not intended to be promotional material in any respect. This document should not be regarded as providing investment advice or recommendations. Prospective investors should seek independent advice. The opinions and views contained herein are those of the author and do not necessarily represent the views of Schroders or are reflected in other Schroders communications, strategies or funds. The information contained herein is accurate only at the time of publication. Opinions and forecasts are subject to change without notice. The information herein and information from third parties is believed to be reliable, but Schroders does not guarantee its completeness or accuracy. Investing involves risk.

Schroder Investment Management (Shanghai) Co., Ltd.（CIS）

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