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

This year, we plan to launch two specialized funds and already have promising projects in mind," Fang Ya said confidently while brewing tea. Fang Ya is the IR director 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, chips and semiconductors, and robotics, with capital’s 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 rise. More and more investors believe that even within consensus sectors, they can achieve excess returns.

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

LPs seek certainty

Institutions want to “grab projects”

“Now, many high-net-worth individuals and industry LPs are less interested in blind pools. Explaining strategies to them takes time; it’s better to just present a project directly,” Fang Ya noted. Since last year, she has observed that funds focusing on single or designated projects are easier to raise and make decisions faster.

For many small and medium private VC/PE firms, specialized funds hit the current pain points: 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 that require “money first, then find projects,” and prefer specialized funds where they know exactly where their money is going.

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

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

Second, quick decision-making is essential to seize hot projects. Wang Jun explained that as a private investment firm, their investment decision process is more flexible than state-owned enterprises. “Our core LPs participate in decision-making, listening to projects and discussing plans together. Once everyone agrees, the decision is made.”

In fact, the reason specialized 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 delays in fundraising and registration, leading to situations where “funds arrive but shares are gone.” Specialized funds can lock in shares in advance and precisely position themselves.

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

The reporter noted that as early as last year’s hot Hong Kong stock market, investors predicted a wave of “hotness” for specialized 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 opens a window for future tech companies, offering new listing opportunities; fourth, leading tech companies in GPU, robotics, and other fields demonstrate profit potential, fueling strong market expectations of earning effects.

Good projects

Are key to the success or failure of specialized funds

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

According to industry sources, the typical size of mainstream specialized funds is between 100 million and 200 million yuan, which is easy to raise and meets most project investment needs. However, even small funds need to balance the pace of fund registration and project acquisition. Many institutional interviewees told us that regulatory approval for specialized 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 always highly competitive, without prior preparation, funds risk missing the investment window.

The industry’s common approach is to plan ahead and reserve resources. Most VC firms annually plan one or two specialized 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 database 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 high-quality hot projects emerge, they can act quickly without starting from scratch, capturing opportunities.

In today’s market environment, securing high-quality project shares is more critical than fund registration. Currently, specialized funds mainly focus on hot hard-tech sectors like AI, semiconductors, commercial space, and humanoid robots, with leading companies’ investment shares being highly competitive industry-wide. “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; otherwise, we risk missing major opportunities.”

Project differentiation and compliance risks

The resurgence of specialized 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 currency investments 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, some risks of specialized 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 veteran investor revealed that many specialized funds targeting star projects claim publicly 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 pay attention to compliance risks. Some specialized 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 harm LPs’ rights,” Fang Ya warned. High-net-worth individuals should be cautious about chasing hot trends and star projects in specialized funds and be aware of hidden compliance risks, avoiding being blinded by short-term hype.