Rising pressures in Chinese private equity

Government-linked entities such as China Investment Corporation, National Social Security Fund, China Development Bank and the State Administration of Foreign Exchange have all participated in private equity, in particularly CIC, which has recently been awarded up to $200 billion in additional capital from the Mainland government (See page 12).

All market conditions, even in buoyant times, have their challenges. China is in very good shape, economically, but investors still need to be wary of the intricacies and proceed with caution. One issue that stands out for investors is that valuation for deals are becoming very expensive. As KMPG's Douglas Ferguson says in our cover story (page 8), "Many deals that were done in late 2008-09 are looking like wise investment decisions compared to comparable valuations this year."

However, if investors think competition will cool down then look again as fund raising for China focused funds continues to heat up. Research estimates that more than $80 billion of private equity funds aimed at Chinese assets is now being raised. While some are allocation from global or regional funds, a substantial portion is coming from Yuan-denominated funds.

The last few weeks saw Goldman Sachs and Morgan Stanley jumping into the RMB-fund bandwagon. Goldmans aligned themselves with the Beijing government to raise a RMB5 billion ($770 million) fund, while Morgan Stanley's well-regarded private equity operation opted to work with Hangzhou Industrial & Commercial Trust, a state-run enterprise controlled by the local government of Hangzhou, on a smaller RMB 1.5 billion fund.

Many of the big names in private equity have their own RMB fund effort in the market including TPG, Carlyle and Blackstone, while leading local firms such as Hony Capital, CITIC Private Equity and CDH Holdings have completed fundraising for locally denominated vehicles.

Fundraising is apparently not happening as fast as some GPs might have hoped and it seems most GPs, despite receiving approvals, are still hesitant to go full speed on the QFLP scheme as they fear they may be hamstrung by the portion invested by foreign LPs still being subjected to the same restrictions as other foreign investors.

In the face of this increasingly expensive market, Walden International's Lip Bu Tan says: "The heart of the challenge is staying disciplined and not chasing deals with high valuation." Easier said that done, as Tan told AVCJ Senior Editor Brian McLeod in an exclusive interview (see page 16). "That can be hard to do when everybody's chasing and paying the high prices demanded, to the point where even if it doesn't make sense you find you have to follow," added Tan.

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• Topics
• Greater China
• Fundraising
• Renminbi fund
• GPs
• CIC
• Goldman Sachs
• Morgan Stanley
• TPG Capital
• The Carlyle Group
• The Blackstone Group
• Hony Capital
• CITIC Capital Partners
• CDH Investments Management