in-depth | government investment funds have difficulty raising funds, spending money, and exiting. how to solve this problem?
2024-09-12
한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina
in order to give full play to fiscal funds to promote industrial transformation and upgrading, the scale of china's government investment funds has increased year by year in recent years and has exceeded 7 trillion yuan. whether this fund can be used in a standardized and efficient manner has become a focus of social attention.
recently, some provinces have successively released the 2023 local budget implementation and other fiscal revenue and expenditure audit reports (hereinafter referred to as "audit reports"). while affirming the guiding and promoting role of government investment funds in economic and social undertakings, they also pointed out some problems existing in government investment funds.
these problems include the fact that some government investment funds have difficulty in raising social capital, and some funds have low fundraising rates; some government investment funds are not invested in compliance with regulations, and do not support key industries or high-tech projects. instead, some are invested in real estate projects and some are used to repay debts; some funds are invested slowly, and there are idle funds or even illegal borrowing, resulting in hidden debts; some government investment funds have low management levels, imperfect relevant systems, and it is difficult to withdraw investment funds from matured projects.
luo zhiheng, chief economist of guangdong securities, told caixin that the core problem of government investment funds is the unclear boundaries between the government and the market. the biggest contradiction is that they have both policy target constraints and market returns. this makes government investment funds face many problems in actual operation, such as difficulty in fundraising, many regulatory constraints, insufficient marketization, lack of professional talents, lack of biddable items, and poor exit channels. the key to the government's solution to the above problems lies in clarifying the boundaries between the government and the market, returning to the guiding and service-oriented government role, and leaving market problems in fund operations to the market.
why is it difficult to raise funds?
the so-called government investment fund refers to funds established by governments at all levels through budget arrangements, with separate or joint investment with social capital, which adopts market-oriented methods such as equity investment to guide various types of social capital to invest in key areas and weak links in economic and social development, and support the development of related industries and fields.
against the backdrop of the increasing contradiction between fiscal revenue and expenditure, government investment funds have become popular because they have reformed the traditional way of using fiscal funds, namely, by attracting social capital to support the transformation and upgrading of local industries and give full play to the "leverage" effect of fiscal funds. the number and scale of government investment funds have increased year by year, and have become an important tool for local governments to stabilize investment.
according to statistics from the zero2ipo research center, as of 2023, my country has established a total of 2,086 government-guided funds with a target scale of approximately 12.19 trillion yuan and subscribed capital of approximately 7.13 trillion yuan.
judging from the issues disclosed in local audit reports, difficulty in fundraising is a major pain point in the current development of government investment funds, and some places even engage in false fundraising.
when disclosing problems in the operation of provincial government investment funds, the shanxi audit report stated that two fund management institutions, shanxi financial investment holding group co., ltd. and shanxi cultural tourism investment holding group co., ltd., included fiscal funds, false corporate investments and fund managers' investments into social capital, and falsely reported raising social capital of approximately 10.3 billion yuan.
the liaoning audit report stated that the 348 million yuan of funds payable for two sub-funds had not been raised in full; and for one fund with a scale of 20 million yuan, social capital only contributed 100,000 yuan.
the inner mongolia audit report pointed out that two regions used 179 million yuan of government bond funds to set up funds in violation of regulations, and the fundraising rate of some funds was low.
hu bo, associate professor at the school of finance and economics of renmin university of china, told caixin that government investment funds fall under the category of private equity investment funds, and the private equity investment fund industry generally faces difficulties in fundraising. among the newly raised private equity investment funds established this year, the scale of funds from government and state-owned enterprises accounts for more than 80%. the difficulty in raising funds for social capital is reflected in the field of government investment funds, mainly manifested in the high proportion of government investment in government investment funds.
"some government investment funds are unable to raise sufficient social capital as planned in their intended sub-funds, further affecting the progress of their overseas investments. in addition, due to the recent tightening of the pace of ipos (initial public offerings) in the capital market and weakening expectations for project exits, the direct investment progress of government investment funds and sub-funds has been objectively affected. the above-mentioned problems have further led to a certain amount of idle funds in some government investment funds and sub-funds," said hu bo.
in order to prevent local debt risks, fiscal and financial supervision has been continuously strengthened. after the release of the new asset management regulations in 2018, financial institutions have been subject to greater restrictions on their investment in government investment funds. under the pressure of economic downturn, the willingness of social capital to invest in government investment funds has also declined. therefore, some experts suggest that relevant state ministries and commissions further relax restrictions on financial institutions' participation in government investment funds to solve the problem of raising funds for government investment funds.
luo zhiheng suggested that pe/vc (private equity and venture capital) institutions, sovereign wealth funds, high-net-worth individuals and other investment entities with higher risk-bearing capacity could be widely attracted to join government investment funds to enrich the sources of social capital.
"in the past, the fundraising targets of government investment funds were mainly traditional financial institutions such as banks and insurance companies. although these financial institutions have sufficient funds, their risk-bearing capacity is weak and they prefer a fixed rate of return on investment, which is inconsistent with the characteristics of government investment funds, such as long payback periods and unstable rates of return. in the future, the fundraising targets of investment funds can shift to pe/vc investment institutions, sovereign wealth funds, high-net-worth individuals and other investment entities whose risk-bearing capacity is more matched with investment projects." luo zhiheng said.
he believes that the scope of fund-raising by government investment funds should not be limited to the domestic market. against the backdrop of greater financial opening up, funds can try to jointly establish funds with overseas financial institutions, widely absorb overseas capital, and then reinvest it in the country.
of course, some places are keen to set up government investment funds, and the problems of too many funds, duplicate investment, and scattered funds have also attracted attention. for example, the shanxi audit report stated that 82 sub-funds involving an investment of about 26 billion yuan were established without approval or against procedures.
luo zhiheng said that some places blindly followed suit and established multiple, large-scale government investment funds, but there were few investable projects in the region and the financial environment was poor, resulting in the funds having only the target fundraising amount, but being unable to raise funds in the later stage, resulting in a waste of fiscal funds and human and material resources. it is recommended that when developing government investment funds, local governments should reasonably determine the amount and scale of government investment funds based on the actual situation of local industrial development project resources, and avoid pursuing "more" in quantity and "large" in value. government investment funds should be adapted to local conditions and should not be stereotyped or duplicated.
hu bo suggested strengthening provincial-level coordination of government investment funds, and for provincial governments or government departments to issue relatively unified management system requirements applicable to government investment funds at all levels in the province. strictly restrict county-level and lower-level governments from establishing government investment funds.
new hidden debts and non-compliant investments
luo zhiheng said that in order to attract social capital such as banks, government investment funds often promise to repurchase the principal or set a minimum investment return, resulting in hidden debt problems; at the same time, the source of funds is single, and in the post-asset management regulations era, it is more difficult for banks, insurance companies and other capital to invest in funds, resulting in many funds being unable to be established or subsequent investments being delayed.
some local audits have also found new hidden debts in government investment funds.
for example, the inner mongolia audit report pointed out that one region illegally raised 8 billion yuan in debt in the form of government investment fund operations, and a fund at the autonomous region level invested 1.12 billion yuan in projects in the form of debt. the yunnan audit report said that one company illegally raised 1.928 billion yuan by using government investment fund pledge guarantees. the shanxi audit report said that 15 provincial-level sub-funds invested 1.283 billion yuan in "equity in name but debt in reality".
hu bo said that some local government investment funds still have certain compliance issues, and some government investment funds have debt investment or disguised equity investment, which is relatively common in economically underdeveloped areas. however, in the past two years, there have been few cases of using government investment funds to increase local government debt in disguise.
at present, government investment funds are mainly industrial, such as supporting local strategic emerging industries, information technology, new energy, new materials, etc., hoping to promote local industrial transformation and upgrading or attract investment. however, the audit found that some government investment funds were not invested in the original intention, some funds were not invested in local industries as scheduled, and funds were idle.
for example, the anhui audit report stated that four funds failed to fully implement the requirements for key supported enterprise types, and two funds failed to fully implement the requirements for key supported industrial fields. they failed to connect with investment projects in scientific research institutes and universities, support high-tech industries and advanced manufacturing industries, etc. as required.
the fujian audit report stated that the leverage of government investment funds was limited. due to the small number of investment projects, some funds used the remaining funds to purchase structured deposits, etc.; some funds violated regulations by investing in projects in the form of entrusted loans. the yunnan audit report stated that one company borrowed 154 million yuan from government investment funds to repay debts. the shanxi audit report pointed out that 812 million yuan of funds were illegally invested in real estate development and other projects; 230 million yuan of funds were invested in private equity funds outside the province in excess of the proportion agreed in the contract.
hu bo said that some government investment funds have deviated from their establishment plans due to the lack of necessary investment guidance and supervision.
luo zhiheng believes that the core appeal of government investment funds is to promote local industrial development. therefore, government investment funds have relatively strict restrictions on investment regions and industries. the most common one is to limit the amount of investment funds invested in the local area by setting a return ratio.
he said that on the one hand, in areas with a high return investment ratio, there are relatively few investment opportunities, a long project mining cycle, low efficiency of government investment funds, and prominent problems of idle funds. some fund managers regard it as "bottleneck" funds, and their enthusiasm for participating in government investment funds has declined. on the other hand, many funds will only start to return investment when the deadline is approaching, or transfer part of the funds to subsidiaries by setting up subsidiaries in other places, and include them in the local consolidated financial statements at the end of the year, but the actual investment takes place in other places, making the return investment ratio restriction a formality and not really achieving the purpose of promoting local industrial development.
government investment fund projects often progress slowly and funds are often idle.
for example, the liaoning audit report stated that fund investment progressed slowly, with one fund receiving 502 million yuan in funds and completing two direct investment projects, with a total investment of 48.3 million yuan, accounting for only 9.66% of the funds in place. the ningxia audit report stated that the 44 million yuan equity investment fund established was mainly used to invest in innovative enterprises in the region, but due to the high required investment rate of return, 35.2 million yuan of funds were idle. the shanxi audit report stated that the 1.431 billion yuan fund managed by the aforementioned shanxi financial holding group, shanxi cultural tourism group and other three companies had been idle for a long time.
luo zhiheng said that although government investment funds are not for profit, the nature of state-owned assets requires value preservation and appreciation. managers are afraid of being held responsible for mistakes and dare not invest funds in innovation and entrepreneurship fields in the seed and start-up stages. most government investment funds actually invest in late-stage projects such as mature ones, or directly purchase financial products, or even leave them idle, failing to achieve the policy goals of promoting innovative and entrepreneurial enterprises and guiding the upgrading of industrial structure.
hu bo suggested strengthening the management of government investment funds. during the fund establishment demonstration stage, the finance department should take the lead in conducting financial affordability demonstration. for funds that really need to be established, the financial contribution should be included in the budget management and reported to the people's congress at the same level for deliberation. after the fund is established, in principle, it should insist on investing in the parent and child funds in stages according to the investment progress; at the same time, reduce the level of parent and child funds, limit multi-layer nesting, and reduce the idleness of funds at different levels.
he believes that it is necessary to strengthen the guidance of government investment funds. he suggests that the development and reform department, together with the competent departments of the government investment fund industry, should, based on in-depth research on the development of key industries in the region, guide government investment funds and their sub-funds to make investment arrangements around the industries that the region intends to focus on by issuing fund investment guidelines, industry guidelines and other forms.
"at the same time, by issuing a negative investment list for government investment funds, we can prevent government investment funds from being invested in backward or to-be-eliminated industries such as real estate, overcapacity industries, and high-pollution and high-energy-consuming industries," said hu bo.
luo zhiheng said that practice has proved that the various restrictions imposed by the government on investment funds have not achieved the original intention of promoting the development of the local industry. instead, they have caused problems such as failure to attract excellent fund managers, distortion of managers' investment actions, and low fund operation efficiency. it is better to appropriately relax restrictions such as the return ratio and registration place, so that funds can operate according to market principles. in recent years, many funds have begun to relax restrictions such as the return ratio, entry threshold and registration place requirements, and government investment fund contribution ratios. for example, qingdao new and old kinetic energy conversion investment fund has reduced the return ratio from 2.0 times to 1.1 times.
low management level and difficult exit
judging from the problems disclosed in local audit reports, some government investment funds lack relevant systems, have low levels of institutional management, have difficulty withdrawing investment funds from expired projects, have not been able to recover funds in a timely manner, and even face risks of losses.
the inner mongolia audit report stated that some government investment funds had problems such as fund management fees not being linked to performance, fund managers not meeting the qualifications or illegally escaping supervision, and difficulty in withdrawing investment funds from expired projects.
the tianjin audit report stated that the recovery target of the guidance fund was not achieved. by the end of 2023, 420 million yuan of the 895 million yuan of equity funds that should have been recovered had been recovered.
the anhui audit report pointed out that the management institutions of the four local mother funds had not established and improved internal control systems such as the qualified investor suitability system and the property separation system, and had not supervised and inspected the implementation of the internal control system in accordance with regulations. there were defects in the management mechanism for triggering repurchases. because the partnership agreement did not clearly define the decision-making body and approval process for handling triggering repurchases, 50 projects invested by the two funds had triggered repurchases and had not been handled for a long time.
the shanxi audit report stated that due to the suspension of investment projects and corporate losses, about 9.65 billion yuan of funds were at risk of loss. the ningxia audit report stated that 650 million yuan of industrial guidance funds were invested in enterprises with overcapacity and prominent financial risks, of which 640 million yuan of funds were at risk of loss.
to solve the above problems, it is obviously necessary to solve the problem of unclear boundaries between the government and the market in government funds.
hu bo suggested that the boundaries between the government and the market should be further clarified, and while adhering to government guidance, the government investment funds should be managed professionally and operated in a market-oriented manner. on the one hand, it is necessary to prevent government departments from imposing inappropriate administrative intervention on investment decisions at the fund project level; on the other hand, it is necessary to raise the requirements for the professionalization, marketization and standardization of fund management institutions, establish a reasonable incentive and constraint mechanism, and achieve more consistent interests between the investment management team and the fund through performance rewards, follow-up investment and other mechanisms.
to improve the management level of government investment funds, professional talents are the key.
luo zhiheng believes that in terms of government investment fund management, the government should strengthen cooperation with professional fund companies in the short term and introduce market experience to improve the efficiency of fund use; in the long term, it should optimize the talent selection and talent management mechanisms to enhance the fund's attractiveness to professional talents.
we also need to look rationally at the possible losses of government investment funds.
luo zhiheng believes that a fault-tolerant mechanism should be implemented. for mistakes made during the investment process of government investment funds, as long as there is no abuse of power for personal gain and procedural regulations are followed, they will be exempted from administrative and performance accountability, and the subjective initiative of fund managers can be fully exerted.
he suggested that in order to allow fund managers to dare to invest according to their true intentions, investment funds must improve their fault tolerance mechanism. on the one hand, the entrusted management institution shall not be held responsible for investment losses caused by force majeure, policy changes and other factors in investment decisions that have been fulfilled with due diligence. on the other hand, comprehensive performance evaluation shall be carried out in accordance with the investment rules and market principles of investment funds, and the profit and loss of a single sub-fund or a single project shall not be assessed.
luo zhiheng believes that there are many problematic funds and zombie funds in the current market, which increase the burden on local finances. it is necessary to improve the supporting exit policies, and not just "establish" without "breaking". for those whose investment objectives cannot be achieved or have been fully achieved, they can exit the market in an orderly manner after sufficient demonstration. develop multi-level exit channels, accelerate the cultivation of the new third board and science and technology innovation board markets, and standardize the local equity trading market environment.
in addition, some government investment funds lack performance evaluation systems. for example, the tianjin audit report stated that since the establishment of the tianjin venture capital guidance fund and the tianjin angel investment guidance fund in 2015, the relevant departments did not conduct the first fiscal performance evaluation until june 2022.
hu bo suggested that in accordance with the requirements of "having goals beforehand, monitoring during the process, evaluation in stages, and application of evaluation results", a performance management system for government investment funds and sub-funds should be established and improved, and the performance evaluation results should be linked with the extraction of management fees, distribution of performance rewards, and government investment concessions.
(this article comes from china business network)
