A tale of two markets

The fundraising environment now seems to be mirroring the broader macro economy. As Western fundraisers, like Western consumers, continue to struggle, Asian – and especially Chinese – firms seem to be accelerating off tremendous relative strength in the local fundraising markets.

Two major Chinese financial institutions, CCB International and CITIC Securities, both announced their new $1 billion+ private equity vehicles in the same week, the former as part of an exercise that may include up to six more domestic RMB vehicles. This comes just a week after the China Investment Corporation (CIC) bought into London’s Apax Partners – and signs are that this is just the beginning.

Western GPs are also back in the market, sources say – but with much darker prospects. Apparently, up to 1600 funds have scented a revival in LP interest, and have either relaunched fundraising drives postponed since earlier in the crisis, or brought their new vehicles to market. And some 300 of these funds are Asia-focused.

All bets are off about the timing and prospects of these entrants – or re-entrants – to the fundraising melee. Other sources indicated that around 100 funds ended their raising this year without a close, and of those that did close, around 80% internationally were undersubscribed. Desperation may have overtaken good sense for some, who may have been unable to invest for 12 months or more. But, as also reported last week, the latest Coller Capital Global Private Equity Barometer shows no great resurgence of commitment to the asset class, and a lot of disgruntled LPs for GPs to deal with.

Fundraising in Western markets is therefore likely to be a dogfight for what little remains of the LP dollar, with far more GP activity than there is LP comeback to sustain it. Meanwhile, some senior industry figures are now leaning toward the view that RMB funds and China money could be the biggest new pool of LP capital, and could even eventually grow larger than the West’s private equity sector – what was once impossible now seems at least feasible.

But what kind of private equity ecosystem would this new lake of China money support? Profit-focused value-driven investing, for one thing, could be a real problem in an environment like that. Bank-connected private equity funds have had a patchy track record as value creators and deliverers, and the new PRC vehicles seem to be far more closely tied to their parents’ agendas and purposes than even their Western peers. Also, PRC private equity investors seem to be pretty flexible on their valuation and returns expectations. CIC reportedly did Apax and its troubled existing LPs great favors by buying up their commitments at par – in a market where swelling secondary inventory has depressed prices to cents on the dollar, or pennies on the pound.

So, Western GPs wearing away their shoe leather on the fundraising trail might at least take some comfort in the thought that their newly-flush China brethren may ultimately exhibit fairly poor performance in comparison to all the money being pushed their way.

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• Topics
• Greater China
• Fundraising
• Coller Capital
• Apax Partners Hong Kong