Shanghai plans secondary market exit for investors
As part of plans to become a global financial centre, the city mulls setting up secondary market to allow private equity funds to cash out
Shanghai plans to establish a secondary market to enhance liquidity for private equity funds, creating a new exit for embattled early investors amid a drought in initial public offerings.
Shi Haining, a director of the Shanghai Pudong financial service bureau, told a forum yesterday the city's government had given priority to the creation of the secondary market - the first of its kind on the mainland - by the end of the year as part of its efforts to build the Pudong district into an international centre for private equity deal makers.
"The private equity sector is now facing a huge demand for liquidity," Shi said. "Exits via stock market listings don't seem viable. Therefore, a secondary market is urgently needed."
On such a market, investors in private equity funds, or limited partners, can cash out by selling their investments or investment commitments to other funds.
Normally, the investments are sold at a discount, so the buyers of the stakes stand to benefit when the market recovers.
The private equity sector suffered from a slumbering IPO market last year. The mainland's securities regulator suspended IPOs in October to stem fresh supply of equities and underpin the bearish stock market.
According to global consultancy Bain & Co, deal exits for the private equity sector in China declined 38 per cent in volume and 46 per cent in value last year.