Greater China's Private Equity Growth Story Starts To Fade

Tom Burroughes

13 December 2019

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, , 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.