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China-Based Investors in Private Equity Funds – July 2014

by Ling Yan Teo

  • 14 Jul 2014
  • PE

With annual GDP growth of 7.7% since 2012, World Bank predicts China’s GDP to continue increasing at a similar rate in the next two years. The fast-developing nation overtook Japan as the country with the second largest GDP in the world in 2010, and has remained in that position since then. China has, and continues to be a hotbed of investment for the private equity sector. In recent times, the Asian country has produced a couple of high profile exits backed by private equity funds, including Alibaba and JD.com.

Preqin’s Investor Intelligence currently tracks 109 Chinese institutions with a preference for private equity funds, which collectively manage aggregate capital of approximately $3.5tn. Corporate investors make up the majority (31%) of this investor pool, while government agencies and investment companies constitute 25% and 21% respectively. The remaining 23% consists of investors such as asset managers, insurance companies and sovereign wealth funds.

In terms of fund type, 58% of China-based companies prefer venture capital vehicles, including stage-specific and generalist funds.  Over half (53%) of them are interested in the growth strategy, and 34% express an inclination towards buyout opportunities. Other fund types pursued by Chinese firms include fund of funds, mezzanine, natural resources and secondaries vehicles.

Geographic preference is highly skewed towards the greater China region, with 92% of China-based investors seeking investments in the domestic market. This is unsurprising, given that its rapidly developing economy attracts investors from all over the world, and investors are known to have home bias. Fourteen percent of all firms based in China with a preference for private equity funds maintain a global outlook. Apart from these regions, China-based institutions also consider markets including North America, Europe and emerging economies.

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