The dominance of foreign private equity (PE) firms on the mainland is declining, and this was evident following the departure of two of its big hitters to strike out on their own. TPG Capital's high-profile managing director Mary Ma announced the debut of her own PE fund in February last year, followed by Goldman Sachs partner Fred Hu, who left the United States investment bank in May to launch a US$10 billion China-dedicated PE fund called Chunhua.
The mainland's PE industry is changing fast, says Robert Partridge, managing director, China leader for transaction advisory services and venture capital advisory group, Ernst & Young.
'We're seeing the development of renminbi funds, which is driving the development of local funds and the departure of talent from the large international firms. [This is] acting as a catalyst to China's privately-owned firms and financial institutions to invest in and establish their own PE funds,' he says. 'Some of the Chinese dealmakers feel constrained as a result of overseas investment committees and their related approval processes. Localising allows them the autonomy to get deals done. Embedded in that will be investment committees comprised of local people who understand the risks and how to manage these markets versus foreigners who don't know China well and are sitting thousands of miles away.'
The rapid growth of China's PE industry is a development that Peter Lee, a PE investment professional and managing director of Capvest Asia, is watching carefully. He says that the huge sums of money being invested into renminbi funds are driving China's PE market, and it is coming from banks, local governments, and companies with listing capital to invest.
'That's why there is an increasingly positive attitude in the mainland towards PE funds and it's also why the industry is seeing the development of local PE funds in renminbi managed by privately-owned or listed industrial mainland companies, and funds managed by local entrepreneurs,' Lee says.
According to Deutsche Bank, China has shown strong PE dynamics, as fundraising from Chinese PE funds has increased more than seven-fold between 2005 and 2008, while 2009 was softer. But fundraising growth has returned even stronger in the past 12 months resulting primarily from a significant increase in onshore renminbi funds.
'Private equity penetration in the Greater China region is still relatively low,' says Peter Pfister, head Asia-Pacific for Deutsche Bank Private Equity. 'But there is clearly increasing acceptance for private equity as market participants are not only supplying capital, but also added value and expertise.
