Alt Investments
Greater China's Private Equity Growth Story Starts To Fade

For a variety of reasons, growth in the country's private equity sector is decelerating, although the future looks promising as China moves from being an export-driven economy to one built more on domestic consumption, the research firm reckons.
The growth in private equity assets in Greater China is slowing,
due to China’s trade tensions with the US and a flagging global
economy, Preqin, the
research firm tracking alternative asset classes, has
reported.
Assets under management in China reached almost $600 billion at
the end of 2018, a record, but the 12-month growth through the
year was the lowest seen since 2015.
“It seems likely that growth will slow further – fundraising and
deal-making in the region both fell in 2019, having hit record
highs in recent years. As of the end of July, Greater
China-focused fundraising had reached $57 billion, while total
deal value hit $26 billion, the firm said in a note.
This figure compares with $135 billion raised in 2016 and a
$124bn deal value reached in 2018 – the record years for these
activities. Nevertheless, the future for Greater China looks
promising. After decades of investment being dominated by foreign
operators, China is transitioning from an export-driven economy
to one built on domestic consumption, and is focusing on becoming
a world leader in technology and innovation.
A fund-raising slowdown also comes amid concerns that the private
equity industry has a surfeit of “dry powder”, or capital yet to
be put to work, and that the pace of inflows need to decelerate
to prevent yields getting compressed.
“Greater China’s private equity and venture capital industry
slowed down in 2018, and continued to slow in the first half of
2019,” Ee Fai Kam, head of Asia operations, said. “It is getting
harder to raise funds and close deals in China due to an economic
slowdown, high debt and trade tensions with the US. However,
China is transitioning to a system powered primarily by domestic
innovation, and new opportunities are being opened up for
investors and fund managers. With technological innovation
expanding into new sectors, there is a lot of potential to find
new opportunities for investment in Greater China.”
As at July 2019, 57 funds have been closed, securing $57 billion
in the year to date. The highest amount of capital ever raised in
the region was $135 billion in 2016.
On the deals side, venture capital has closed 1,661 deals with a
value of $25 billion and 28 private equity-backed buyout deals
with a value of $1.5 billion so far this year. In contrast,
venture capital deals reached a record with $107 billion in 2018,
and private equity-backed buyout deals reached their peak with
$35.4 billion in 2017. With 251 institutions, US-based investors
are the second largest group of investors targeting Greater China
by known fund commitments, after China-based ones which come in
at 311.