China PE returns stunted by public market performance

Speaking at the Hong Kong Venture Capital & Private Equity Association's (HKVCA) Asia PE forum, Gabriel Li, managing director at Orchid Asia Group, said China had captured the imagination of institutional investors, attracting the majority of PE commitments the region on the past 10 years. Unfortunately, the country has displayed the region's worst performance in terms of exits over the past five years.

"If you look at the total distributions made in China made versus capital calls, the returns have represented a little less than 50% of the amount invested," Li said.

By contrast, the region as whole has performed well over the last five years, with a record $60 billion returned to investors last year compared to just $19 billion returned in 2009 in the wake of the global financial crisis.

The region still lags behind the US where the distribution-to-capital call ratio was around 1.5 to 2. However, Li pointed out that - by contrast - the more mature US market has seen greater divestments over the last 4-5 years due to strong capital markets. Similarly, PE returns in Asia have been influenced by public equity returns.

"Public market returns over the last 15 years have been about 3% - the PE returns have been 8-10%," said Li. "While the absolute returns of US funds are higher, the relative returns of private equity in Asia are similar to the US in terms of the improvement over the public market index.

"I believe institutional investors investing in the region have to benchmark against relative returns as well as the absolute return for the asset class."

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• Topics
• Fundraising
• Exits
• Greater China
• Performance
• Fundraising
• Exit
• China
• Performance
• Asia
• Orchid Asia Group Management