China Unicorn Funds Begin Operations

Once marketed with great fanfare as an “epoch-making gala for investors,” the six Chinese “unicorn” funds quietly began operations on Monday—alongside Xiaomi Corp’s lackluster Hong Kong debut—after raising just one third of their original targets.

The six funds, launched to support mainland listings of home-grown tech firms such as smartphone maker Xiaomi and e-commerce giant Alibaba Group Holding, originally sought to raise 300 billion yuan ($45.33 billion) from retail and institutional investors, Reuters reported.

But they ended up with only 104.9 billion yuan among them, according to statements published over the weekend, despite a massive marketing effort orchestrated by Chinese regulators.

The shortfall reflects reduced appetite for much-hyped tech IPOs in a market roiled by trade war fears. And investors are showing some distrust toward funding projects orchestrated by the Chinese government.

The funds were promoted as a special opportunity for mom-and-pop investors, who are allowed for the first time to participate in tech IPOs as cornerstone investors along with institutions.

But retail investor David Song said he was not impressed. “I’m very cautious toward such innovative funds, and I know little about CDRs,” Song said, referring to Chinese Depository Receipts, the instruments overseas-listed firms use for domestic listings, and to which the funds will subscribe.

China Southern Fund Management, China Merchants Fund and E Fund declined to comment. The other three funds, China AMC, Harvest and China Universal, could not be reached immediately for comment.

Some investors have drawn parallels between the unicorn funds and China’s first outbound “QDII” funds promoted by the government 11 years ago. Those funds burned investors after global markets collapsed during the 2008/09 financial crisis.

“The smell is very similar,” wrote Huang Tao, strategist at Beijing Heju Investment, adding that in both eras, valuations of overseas tech firms were near historic levels and were surrounded by hype. “I believe history will repeat itself.”

In a potentially ominous sign, Xiaomi shares fell as much as 6% during their debut in Hong Kong because of valuation concerns.

In mainland China, investor enthusiasm toward unicorns—tech companies valued at more than $1 billion—has also cooled rapidly.

Investor Zhu Haifeng said he didn’t buy into the unicorn funds, which have a lock-up period of three years, because of the risk.