Special Funds Quietly Gaining Traction: LPs Seek Certainty as Institutions Rush to "Secure" Prime Deals

This article is provided by China News Service and TuChong Creative

Reporter Zhuo Yong, Securities Times

“We plan to launch two special funds this year and already have some promising projects in mind,” Fang Ya said confidently while brewing tea. Fang Ya is the IR head of a VC firm in Shenzhen focused on the healthcare sector. After recent discussions with multiple limited partners (LPs), she clearly feels that compared to blind pool funds, individual and industry LPs are now more willing to invest in single, high-certainty quality projects.

Currently, popular sectors are increasingly focused on hard technology fields such as artificial intelligence, semiconductors, and robotics, with capital attention becoming more concentrated than ever. Coupled with a more favorable exit environment created by the capital markets for these sectors, the certainty of investment continues to improve. More investors believe that even within consensus sectors, they can achieve excess returns.

Many institutions share this view. Recent exchanges with several venture capital and private equity firms reveal a noticeable increase in plans to establish special funds this year, indicating a quiet rise of a “special fund boom” in the venture capital scene.

LPs Seek Certainty

Institutions Aim to “Snatch Projects”

“Now many high-net-worth individuals and industry LPs are less interested in blind pools. When you talk strategy with them, it’s better to just present a project directly,” Fang Ya noted. Since last year, she has felt that funds focused on single or designated projects are easier to raise and make decisions faster.

For many small and medium private VC/PE firms, special funds hit a current pain point: first, LPs prefer “visible projects.” After experiencing losses in equity investments and the volatility of virtual currencies, high-net-worth individuals are wary of blind pools where they invest blindly first and find projects later. They prefer special funds that clearly specify where the money is going.

“The key to investing in blind pool funds is trust. Generally, high-net-worth LPs trust top-tier comprehensive funds more, but for smaller and mid-sized VC firms, having high-quality, certain projects is more likely to attract LPs,” said Wang Jun, Managing Director of Hong Zhao Fund.

Wen Xiaoping, co-founder of Huaxia Hengtian, told reporters that the company always adheres to a model of first locking in quality projects before launching a dedicated fundraising. “Our LPs are mainly industrial entrepreneurs who are deeply involved in their industries, with sharp insights. They highly recognize this ‘point-to-point’ special fund model.”

Second, quick decision-making is essential to seize hot projects. Wang Jun explained that as a private investment firm, their decision process is more flexible than state-owned enterprises. “Our core LPs can participate in decision-making, listen to project pitches, discuss plans, and make quick decisions.”

In fact, the reason why special funds are gaining recognition now is based on a practical logic: in the short window of AI large models, commercial space, and robotics projects, traditional blind pool funds often face fundraising and registration delays, leading to situations where “funds arrive but shares are gone.” Special funds can lock in shares early and precisely position themselves.

“This year, we plan to focus on commercial space. Before the Spring Festival, we held roadshows for all LPs, explaining our investment areas and strategic logic to gain their recognition of the sector’s value. We also clarified that we only look at top-tier projects to increase LP acceptance. Before projects come in, LPs will be asked to make upfront payments,” Wang Jun said.

Noticing the trend, some investors predicted last year during the hot Hong Kong stock market that a wave of “hotness” would hit special funds. Veteran investor Li Gangqiang pointed out that the core logic behind this “hot wave” includes four aspects: first, Hong Kong stocks can serve as a backstop for IPOs, creating expectations that companies can at least list in Hong Kong; second, the stock performance of Hong Kong-listed companies during lock-up periods remains decent, creating a market illusion and setting high valuation benchmarks; third, the Sci-Tech Innovation Board opening to future tech companies offers new listing opportunities; fourth, leading tech companies in fields like GPUs and robotics demonstrate profit potential, fueling market expectations of earning effects.

Good Projects

Key to the Success or Failure of Special Funds

The logic seems simple, but establishing a special fund quickly and accurately involves many practical considerations.

According to industry sources, the typical size of mainstream special funds is between 100 million and 200 million yuan, which is manageable for fundraising and meets most project investment needs. However, even small funds need to balance the pace of fund registration and project acquisition. Many interviewees emphasized that regulatory approval for special funds remains quite strict.

Specifically, the agreement must clearly specify that only one specific project can be invested in, all funds must be in the account, and proof of payment and transaction records must be provided to the association to complete registration. The entire process takes at least three weeks. Since high-quality projects are highly competitive, without prior preparation, funds may miss the investment window.

The industry’s common approach is to plan ahead and reserve resources. Most VC firms annually plan one or two special funds, initiated by core investors, with pre-established structures and preparations ready for project needs. Wen Xiaoping further explained that Huaxia Hengtian has developed a dual-warehouse system—deep coordination between a project database and an investor database. On the project side, the company continuously adds quality enterprises to the project pool and maintains long-term engagement; on the funding side, some investors have become shareholders, acting as LPs and co-builders of the company’s growth. When a high-quality, hot project appears, they can act quickly without starting from scratch, securing opportunities efficiently.

In today’s market environment, securing a share of quality projects is more critical than fund registration. Currently, special funds mainly focus on hot hard-tech sectors like AI, semiconductors, commercial space, and humanoid robots, where leading companies’ investment shares are highly competitive. “Good projects leave no time for hesitation, especially in the GPU sector, where the investment window is extremely short,” Wen Xiaoping lamented. “The times are changing rapidly, and investment mechanisms must evolve accordingly, or else we risk missing major opportunities.”

Project Differentiation and Compliance Risks

The resurgence of special funds has not only prompted frequent moves by VC institutions but also reactivated long-dormant high-net-worth individuals and industry LPs. “Individual LPs are returning; we’ve engaged several with strong capital, who previously suffered losses in virtual currencies but are now turning back to equity investments,” Fang Ya said. Especially those who made money in the primary market are more willing to re-enter, which is also related to the current investment heat in hard tech sectors.

However, behind the high enthusiasm of LPs, risks associated with special funds cannot be ignored. “The head effect in humanoid robots is very strong; most mid-tier companies may not have optimistic prospects for future capitalization,” said an AI startup founder. The rapid technological iteration in hard tech means many new technologies launched by companies could be quickly eliminated from the market.

It’s also important to note that not all “star projects” smoothly reach the listing stage. A seasoned investor revealed that many special funds targeting star projects claim that once the current round of funding is complete, they will go public, but actual progress is often uncertain.

Beyond project risks, LPs should also be aware of compliance issues. Some special funds are set up as “limited partnerships” but have not completed registration with the Asset Management Association. “If investment disputes arise later, unregistered funds could jeopardize LPs’ rights,” Fang Ya warned. High-net-worth individuals should pay attention to these hidden compliance risks when chasing after hot projects and star investments, avoiding being blinded by short-term hype.