Noah's Gopher in $80m first close on China secondaries fund

The firm sees opportunities arising from domestic private equity firms needing to return capital to LPs but having limited exit options amidst the current IPO drought. However, as an efficient and liquid secondary market is yet to develop in China, the firm will adopt a wait-to-see attitude before embarking on a second round of fundraising, a source familiar with the situation told AVCJ.

The news comes as the Shanghai government plans to set up a secondaries exchange to help develop the market, according to the Shanghai Securities News. Speaking at a forum over the weekend, Shi Haining, a director of the Shanghai Pudong financial service bureau, said setting up an exchange was on the government's agenda for 2013.

"Private equity players face a huge liquidity demand in the market. However, exits through domestic IPOs are limited. The secondary market could provide an alternative means of cashing out of an investment," Shi said.

Shanghai is not the first authority to attempt to set up the secondaries trading platform. Last year the China PE Secondary Market Development Alliance was launched by the Beijing Financial Assets Exchange (BFAE), which would serve as the forum for trading. The alliance was expected to comprise a group of venture capital and private equity firms, commercial banks, securities companies and financial services institutions.

With China's securities regulator having closed the door to new listings last October, there is a clear need among domestic GPs for alternative exit routes. Many LPs were promised their money back - plus a handsome return - within three years, but this is clearly not going to happen for those stuck in the listing queue.

The drop in renminbi fundraising seen over the last year is indicative not only of how investor sentiment has turned against private equity but also of how a normalized asset class and the short-term outlook of the high net worth individuals who backed these funds were always hopelessly mismatched. Now they want out, and in many cases the fund managers who took their money are also contemplating a change of direction, driven by disillusionment or by an acceptance that they will never raise more capital.

According to a recent report by specialist investment bank China First Capital, 7,500 domestic companies lurk in the portfolios of PE firms. Of these, 200 were identified as "quality secondaries" likely to appeal to investors, and the number is expected to grow 15-25% per year as funds approach the end of their lives. 

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• Topics
• Greater China
• Exits
• Renminbi fund
• Secondaries
• Fundraising
• China
• Secondaries
• Renminbi
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• Noah Holdings