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Private Equity Investor Appetite for China – October 2014

by Karun Ahluwalia

  • 16 Oct 2014
  • PE

The political instability arisen as a result of the pro-democracy protests in the autonomous financial district of China, Hong Kong, has raised concerns in some quarters over investor credibility in seeking fund opportunities in a politically tumultuous region. Preqin’s Investor Intelligence online service currently tracks over 5,400 active investors in private equity funds; 559 LPs have an invested interest in fund opportunities in Greater China, which collectively have an aggregate allocation of just over $1tn to the private equity asset class.

When looking at the location of investors with a preference for China-focused private equity funds, 34% are based in North America, while 28% are situated in Greater China itself. Furthermore, the most prevalent fund type preferences of these investors are buyout and venture capital vehicles, with 75% of investors expressing a preference for both. There is also an appetite for distressed debt vehicles with 40% of LPs stating a preference for the fund type.

A number of LPs are planning to make new commitments to vehicles that will have a geographic focus on Greater China. British Columbia Investment Management Corporation will commit to between six and 10 private equity vehicles targeting opportunities both in China and globally. Furthermore, Brookings Institution will commit capital to two to four new private equity funds targeting growth vehicles that invest in the region.

Despite the ongoing protests in Hong Kong, there appears to be resilience within the Chinese market and investor appetite remains strong. Evidence for this is apparent, with 146 China-focused private equity funds on the road targeting $58bn, and investors that have a preference for private equity opportunities in China represent $22tn in combined assets under management.

However, the uncertainty over the longevity of the protests and the risk of it spreading to mainland China could potentially damage the country’s standing in the financial markets, undoing the perception of China as a pro-business, investor-friendly region.

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