Venture capital funds in China have the performance edge over rivals in Europe and the US, figures show.

Chinese venture capital funds beat US and European counterparts in terms of returns on capital. They also, typically, take longer to mature and hold investments over a larger time-span, a report says.

A detailed analysis of venture capital funds globally shows that Chinese funds of the vintage years of 1997 to 2018 have delivered returns of 1.79 times (total value to paid-in), ahead of US funds on 1.70 x and Western European vehicles on 1.75 x, a report by financial software firm eFront said.

In terms of time to liquidity, Chinese funds average close to 5.5 years, while US and Western European funds have a time to liquidity of under five years. The same is true for the global average, it said.

Some of China’s performance is, however, still in the making. The maturity of Chinese VC funds, measured by the distributed divided by the total value, sits at only 40 per cent, while global funds exceed 50 per cent and US funds exceed 60 per cent.

Chinese VC funds also divest more slowly than their peers from other geographical regions, the report said. A possible cause of this is the difficulty of initial public offerings, as local authorities tightly control public listings. Another is that local companies take longer to gather the critical mass of activity and thus attract local and international buyers. In addition, local regulations on ownership limit international acquisitions and local companies are more difficult to assess for buyers due to higher uncertainties. Such factors make it harder to assess how Chinese VC funds perform.

As reported here in December last year, data from research firm Preqin and European business school INSEAD found that China’s venture capital sector is not in the slipstream of the US any longer. Figures show that Chinese start-ups are attracting more funds than their US peers. In the first six months of 2018, $56 billion was invested in China-based early-stage firms, leaving the US in second place, at $42 billion.