As we enter 2025, the A-share market in China is undergoing significant fluctuations, bringing about a transformative period for the private equity sector. Particularly, the large-scale private equity firms stirring the waters with assets exceeding billions are facing a substantial "test," resulting in an accelerated reshuffle within the industry. Recent data reveals that by January 31, the number of billion-yuan private equity firms has dwindled to 80, a decrease of nine compared to the previous year-end. Notable exits include firms such as Shanghai Baoyin and Fansong Asset Management, while Hainan Turing has impressively surged, marking its entrance into this exclusive circle.

January has seen heightened scrutiny towards the performance of these billion-yuan firms. Among the 379 private equity products that disclosed their performance, the average return for January was a disappointing -0.97%, with less than 40% of these products yielding positive returns. However, as market conditions show signs of recovery, enthusiasm for new product registrations is noticeably increasing, with over 700 private securities products filed for approval in two consecutive months.

The inception of 2025 has spotlighted the structural trends in the A-share market, particularly in the wake of DeepSeek's emergence. AI concept stocks are in high demand, creating a fervor for the technology sector. Although adjustments are ongoing in most sectors, we can observe a clear segmentation within the private equity realm, especially among those focused on secondary market investments. Even the industry's front-runners, the billion-yuan private equity firms, have experienced this reshuffle.

By February 12, the latest statistics confirmed the continuing trend, noting a dwindling number of billion-yuan private equity firms. Firms such as Shanghai Baoyin, Fansong Asset, Ge Finubo, Yuanshin Investment, and several others have temporarily exited this elite bracket, with the emergence of Hainan Turing as a notable newcomer. This shift is significant; out of the 80 billion-yuan private equity firms remaining, 32 are quant funds, while 40 are focused on discretionary trading strategies. Furthermore, seven firms are blended strategy funds.

A standout performer amidst this turmoil is Hainan Turing, which gained its license in early 2021 and has rapidly expanded its management scale to over 20 billion yuan within just over a year, with 90% of its investment coming from institutional players. By July the previous year, the fund had soared to 70 billion yuan, showcasing significant growth potential. The founder and chief investment director, Wang Yamin, a UCL graduate in financial mathematics, has an impressive background, having worked with GMEX Group, Morgan Stanley, and Credit Suisse before establishing Turing Fund.

In contrast, Bansha Investment has drawn scrutiny, temporarily stepping back from the billion-yuan league after investors reported a loss of 15% over three years, raising concerns about its long-term viability.

Analyzing the performance reports for January reveals an underwhelming picture, with less than 40% of billion-yuan private equity products achieving positive returns. Discretionary billion-yuan private equity firms appear to be particularly vulnerable, with many of their products recording losses. Of the 379 products with available performance data, the average return hovered around -0.97%. Dissecting the numbers further shows that discretionary funds averaged a return of -2.00%, with only 12.74% managing a positive outcome.

On a relatively brighter note, the quant-focused funds fared better with an average of -0.09%, and nearly 48% of their products reported gains. For instance, some high performers among these quant firms included Hei Yi Asset and Bo Run Yintai Investment. The hybrid funds, although limited in numbers, also exhibited varying degrees of performance.

Market optimism appears to be rekindling, demonstrated by an increase in registrations for new private equity products. Data from the Private Equity Network indicated 734 private equity products secured registration in January 2025 despite holidays like the Spring Festival. This marks an increase of 7% compared to the previous year, sustaining a number above 700 products, a figure not seen since the introduction of new regulations.

The newly established products are primarily driven by stock strategies, constituting over 65% of the filings, followed by multi-asset strategies. This reflects growing investor confidence as they increasingly recognize long-term market dynamics. With rising expectations surrounding China's AI industry signified by firms leveraging technological advancement, investment logic appears to be transitioning inward, focusing more on domestic growth rather than external influences.

Investment manager Wang Sheng from Xingshi Investment highlights a crucial recovery in China's AI capabilities, stressing its importance in reshaping global perceptions of the nation’s industrial capabilities. This not only signals a strong domestic infrastructure but also repositions the market outlook favorably. The current era showcases a historic low in valuation levels along with an improvement in enterprise performance, establishing the domestic demand sectors as potential gold mines for investments.

With references made to the capital flow into Hong Kong stocks, Wang suggests a shift in sentiment among overseas investors, implying a likelihood of a valuation boost for Hong Kong’s tech stocks, which could transform from substantial discounts to price parity or even premium valuations. In conclusion, the evolving landscape of China's private equity industry and burgeoning AI sector suggests a vital period ahead for investors aimed at harnessing emerging opportunities and navigating prevailing challenges effectively.