Core Viewpoint - The management fee structure in the venture capital and private equity industry in China is undergoing significant changes, moving away from the traditional "2% management fee + 20% performance fee" model to more diversified and flexible fee arrangements [2][3]. Fee Reduction Trends - Many new government-guided funds have reduced management fees to 1.5%, with some regions even offering rates as low as 1% [4]. - The traditional "2+20" fee structure, where "2" represents a 2% annual management fee based on fund size and "20" represents a 20% performance fee, is being challenged as management fees are increasingly being lowered [5]. Changes in Fee Calculation Methods - The industry is shifting from charging based on committed capital to charging based on actual paid-in capital, with some funds adopting a "project-based deduction" model where fees are only charged after project approval and investment [6]. - Some funds are implementing a performance extraction mechanism that ties management fees to investment progress and returns, allowing for fee reductions if performance targets are not met [7]. Changes in LP Contribution Structure - Institutional LP contributions have been declining, with government and state-owned funds now dominating the LP structure, accounting for approximately 88.8% of contributions [10]. - New regulations, such as those from the Guangdong Provincial Finance Department, stipulate that management fees must be paid from fund earnings or interest, not from principal, leading to a more stringent fee structure [10][11]. Market Dynamics and GP Viability - The shift in LP structure is a primary driver for changes in management fee rules, as government and state-owned funds have different priorities compared to private capital [11]. - The increasing size of funds allows GPs to tolerate lower fee rates, as even a reduced fee can still cover operational costs [13]. Impact on GP Motivation and Industry Health - The reduction in fees is seen as a double-edged sword, potentially leading to the elimination of less professional investment firms while also risking GP motivation due to lower income [16]. - To counteract this, government-guided funds are introducing measures such as profit-sharing and relaxed reinvestment standards to enhance GP incentives [16][17]. New Balance Between GP and LP - Recent policies aim to create a new equilibrium between GPs and LPs, emphasizing the need for GPs to demonstrate professional investment capabilities while also allowing for some leniency given the industry's inherent risks and long return cycles [17].