Why investors in China private equity might be missing out on most of the market


A lot changes over a decade, especially when it comes to private equity, and especially when it comes to China. The domestic private equity market has grown rapidly, and offers a range of opportunities with tremendous growth potential.

However, without the right fund structure, international investors simply can’t access many of the deals that we think are the most exciting.

Chinese private equity has become (mostly) self sufficient…

When Schroder Adveq launched its first dedicated Asia private equity fund in 2006, focused on China, international investors were the principal source of private equity capital for Chinese companies. Now international investment is dwarfed by domestic renminbi (RMB) funds.

In 2007, approximately $40 billion was raised from international investors for private equity in China, eight times more than funds raised domestically. In contrast, 2019 saw $163 billion raised domestically and just $22 billion from international investors.

There are a number of reasons for the change. The first is that many Chinese companies – particularly smaller firms - simply do not need to look outside Chinese borders. Deeper pools of domestic capital in China’s RMB funds reduces the need for
companies to source overseas capital.

Secondly, domestic capital comes with fewer government restrictions on the industries in which it can be invested.

Thirdly, there are efficiency savings by raising and investing capital in RMB funds, due to simpler ownership structures and transaction process.

Finally, the development of domestic stock exchanges, especially the STAR Market1 , support domestic listings by reducing restrictions that previously limited young growth. The IPO market has developed such that domestic Chinese company listings now account for about one-third of IPOs, worldwide, by number.

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