Red heat: China PE on the rebound?

There are, however, plenty of reasons for remaining bullish no China, not least because several of the factors listed above have to some extent abated.

Since the reopening of the domestic IPO market last December, foreign investors have rushed into China, with overseas capital accounting for 68% of the $440 million raised in the first quarter of 2014. We've also observed a rise in the number of completed deals and successful exits in the past six months as PE and VC firms regain their momentum.

The recent $1.7 billion listing of JD.com - "the Amazon.com of China" - has resulted in great, though still mostly paper, profits for its backers. The company is still trading at a 30% premium to its IPO price, which may be a prelude what happens when Alibaba Group goes public this summer. Will this public market euphoria boil over to the private equity scene? That remains to be seen but early signs look promising.

Statistics from our research team reflect this change. Since peaking in 2011 with a staggering $55 billion raised, new capital for China-focused vehicles has been slowly declining with last year's total dropping below the $20 billion mark. However, preliminary year-to-date data indicate that the situation is stabilizing with close to $9.7 billion raised by 34 funds - pushing the total amount of China-focused private equity capital to more than $205 billion.

The return of the IPO market is not the only reason to take another hard look at China. There are a number of encouraging developments such as domestic companies' increasing propensity to use M&A, instead of R&D, as an instrument of growth. These same companies are also gradually opening up to investing in, collaborating with, and selling to private equity firms.

Developments are not restricted to the private sector. The government is also playing a role in making the private equity industry more attractive with the easing of regulations, broader financial reforms and the launch of free trade zones.

There can be little doubt that the Chinese private industry is in the process of recapturing not so much its former glories, as a more rational and value-oriented equilibrium.

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• Topics
• Greater China
• Investments
• Exits
• Fundraising
• China
• Growth capital
• buyout
• Exit
• Fundraising