2013.07.19 Costone Capital Views:
CoStone Capital is a boutique Chinese private equity firm founded in 2001. During the past 11 years, more than 50 firms were invested by the CoStone Capital, including Sunward Intelligent Equipment (002097. SZ), Hubei Huitian New Materials (300041. SZ), New Hope Liuhe (000876. SZ). These investments brought 30 to 50 folds of returns, which enabled the firm to be outstanding in return ranking in the industry up to now. In an interview with the 21st Century Business Herald (21 CBH), the chairman of CoStone, Wei Zhang, states that the firm is benefited from its concentrated scale and value-focused investment route, this investment strategy raises less fundraising pressure. However, the concentration also poses challenges to the team’s risk management and post-investment management.
21CBH: what is the impact of the IPO moratorium on the company?
Zhang Wei: One impact of IPO moratorium is on the exit and return. the portfolios on-hand have already generated certain profits, so the financial pressure is relatively low than peers. We are now having five projects lined up at the gate of the IPO already passed the financial verification that will have a big probability of going public. More direct impact is on fundraising, especially those who’s seeking fundraising through banks and trusts due to the suspension of sales by bank proxy for PE funds this year. Fortunately, we normally give priority to direct sales. Although the China Merchants Bank and Noah Wealth once helped us issuing new products, the total fundraised through bank channels accounted for only 20% or less. Around 60% of our commitment capital was funded by entrepreneurs that used to be our portfolio, and ten percent from our management team.
21 CBH: Why CoStone uses a unique way to raise funds?
Zhang Wei: On the one hand, our goal is to be a medium-sized fund firm, and only raise capital that we are capable to manage. On the other hand, firms were funded by CoStone will also invest CoStone reversely, and the investment pressure under such conditions would be totally different. We are acquainted with those firms funded by CoStone and back to invest us as a friend, we trust each other and invest each other’s firm. It is hard to hand over the result with any trick.
In addition, our team is made of a large chunk of personal wealth to follow on investment, this minimizes the agency cost. Also, our team follows up the whole fund instead of a specific project, which avoids partiality between projects.
The large Follow-On by CoStone partners can also offer ‘balance’ in the decision-making process. Many institutions praise a democratic vote on the surface, in fact, the founder of a big influence controls the result of voting. In CoStone, 6 of 7 partners have the right to vote, the even number of partners means no one can be controlled to determine the result of voting by contributing the last vote, moreover, two-thirds of the votes shall prevail. If I conflict with other partners, I am also embarrassed to persuade them, because their personal wealth is tied up here. In total, we want to make a feature of large Follow-On investment, which is also an effective measure to control risks.
21CBH: How to create the ‘luxury’ brand of asset management industry?
Zhang Wei: Many institutions want to invest in the firm which brokers are willing to underwrite, so that the probability of being underwrote will higher. The investment arena under such a strategy will keep broad, which can be seen as each enterprise been invested a little money as " pepper the soup". However, this kind of method will be inefficient later. The first reason is that China already passed the stage of rapid growth and it is difficult to invest in fast-growing enterprises. Secondly, some financial investors only provide cash rather than value-added service, which is not conducive to the growth, we need to build a sound value-added service system.
Our investment is relatively concentrated, with an investment of more than 60 million yuan per project on average, which requires the firm with a higher ability to balance risk and return. This year, we will narrow our investment channel to fewer industries, such as media, medicine, etc.
Our investment team accounts for about 70% of the personnel, and our attention is divided into three parts: research, due diligence, and post-investment service. The research of many brokers and funds focus on "industry fundamentals + financial data ". In contrast, we conduct a more detailed research than the majority. For example, we must interview all the CXOs of potential portfolio, visit their vendors and customers, and make a judgment on the team.
21CBH: Will the CoStone mode being the mainstream of growth PE and late-stage VC?
Zhang Wei: Not necessarily, we could say the traditional PE business is suggested to follow this direction. Many large PE and VC institutions have diversified, such as CDH is doing well in the secondary market and real estate market, the priority of industry may also be shifted this way.
The fixed income will be the mainstream of the asset management market in the future. In recent years, trust is flourishing, and a lot of PE firms also turned to mimic the way of trust. My understanding is that fixed income products are more popular, similar to Uniqlo and Zara in the clothing industry, while PE is involved both high profitability and high risk in nature and can only be made into ‘luxury’ goods targeting a niche market.
Rewritten by: Siyuan, Edited by: Du Zhixin, Li Yunzhen
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026