In recent years, the scale of China’s government-guided funds has expanded rapidly, but their operational efficiency is still uneven. Existing research has mainly focused on market-level influencing factors, but has not yet paid attention to the impact of the internal management and authorization relationship within government-guided funds. From the perspective of political-economic interaction, this paper explores the impact and path of geographical distance on the performance of government-guided funds. Taking the sub-funds of government-guided funds established in 2008-2019 as the research sample, this paper finds that geographical distance will improve the economic performance of sub-funds, but also reduce the achievement degree of its strategic targets. This is mainly due to the fact that geographical distance weakens the government’s supervision and increases the authorization obtained by sub-fund management institutions, so they can make more market-oriented investment decisions and invest in high-profit projects rather than the subjects of government-guided funds. In addition, China’s government-guided funds and sub-fund management institutions have obvious local preferences, which is positive to their strategic goals. This paper has the following contributions: First, it confirms the political-economic interaction between the government and sub-fund management institutions, and also provides a new perspective for analyzing government-guided funds. Second, it measures the performance of government-guided funds more comprehensively, and conducts a dual quantitative analysis of investment returns and strategic targets. Third, it enriches the understanding of the fluctuation and heterogeneity of the internal authorization of government-guided funds, confirms the path of “geographical distance – sub-fund management institution authorization – investment behavior – fund performance”, and provides suggestions for improving government venture capital efficiency.