Private equity growing, but with pains

Source: Global Times
[02:34 September 06 2010]
Comments

By Li Qiaoyi

China is fertile ground for private equity (PE) investment, according to experts at the China RMB Funds Forum held in Beijing Friday.

Yuan-denominated funds have seen a boom since last year with the launch of the ChiNext Growth Enterprise Board in October, which provided an important exit for PE firms. Interim measures on insurance capital management taking effect at the end of August made insurance capital another qualified institutional investor in equity investment after the National Social Security Fund. This move further gave momentum to the domestic PE market, which has increasingly highlighted the growth of yuan funds.

Newly launched yuan funds exceeded their foreign counterparts in terms of both quantity and funds raised in the first quarter of this year, according to Zero2IPO, a VC/PE consulting firm. In the second quarter, newly launched yuan funds continued to outnumber foreign funds although the total value of capital raised trailed their foreign counterparts.

Industry experts were confident in the future growth of yuan funds, while pointing out yuan FOF (fund of funds), yuan-denominated fund investing in other yuan funds rather than directly injecting in shares or other securities, faces problems with regard to its growth in China.

FOF is a choice for individual investors, as most of them lack relevant professional expertise, while the threshold for PE funds is tough for them to get over, said Liu Jianxiong, partner of Tianjin Gopher Asset Management that manages an FOF worth over 500 million ($73.50 million).

There are also views in China that have worries about not directly investing in projects. It will take some time before the idea is accepted here, said Zhao Peng, head of China at Partners Group, a PE firm.

There are still no clear regulations on FOFs in China's current legal system, said Sun Xun, head of Private Equity Fund Practice, at Junzejun Law Offices.

The number of shareholders in a listed company should be no more than 200 under the current legal system.

But the regulations put restraints on yuan FOF, Sun said.