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Overview of China-Focused Private Equity Fund Managers – February 2015

by Ling Yan Teo

  • 18 Feb 2015
  • PE

As low oil prices and uncertainty in the Eurozone roils the global economy, China – with GDP growth in 2014 estimated to be 7.4% by the World Bank – continues to develop at a high rate. This growth has been attributed to increasing urbanization, rising incomes and governmental policy reforms. State-owned enterprises have been subjected to restructuring, while privatizations and deregulation in certain industries have led to improved efficiency.

Preqin’s Fund Manager Profiles database currently tracks 786 private equity firms with exposure to China. These GPs have collectively raised $1.1tn over the past 10 years, and have an estimated $318bn in dry powder. The largest proportion (46%) of fund managers which invest in China are based in the domestic market, followed by a further 19% based in the US and 13% in Hong Kong. Thirty-eight percent of the GP pool targets the Chinese economy exclusively.

In terms of strategy, a significant proportion (65%) of fund managers which include China in their geographic focus seek venture capital opportunities. Fifty-three percent utilize the growth strategy, while 26% prefer buyout transactions.

In the 2015 Preqin Global Private Equity & Venture Capital Report, a survey of 260 GPs revealed that most venture capital managers listed performance as their key concern for the year ahead, despite venture capital producing the strongest one-year horizon returns of any private equity fund type in 2014. This signifies that GPs are still feeling the pressure to deliver consistent returns to investors.

The above table shows the top five performing China-focused funds in terms of net IRR from vintage year 2008 to 2012. It is interesting to note that three of the five vehicles made their first investments in 2011, indicating that the period immediately following the financial crisis provided good returns. While the top performing vehicle was raised by a US-based GP, it targeted funds managed by China-based GPs, suggesting that Legacy Partners saw the value of accessing the expertise of local fund managers to improve the performance of its fund.

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