Record number of private equity funds liquidated in China
A record number of private equity funds on the mainland have closed in the wake of a stock market rout and Beijing's clampdown on short selling, one of their key trading strategies.
A record number of private equity funds on the mainland have closed in the wake of a stock market rout and Beijing's clampdown on short selling, one of their key trading strategies.
Some 148 private equity funds have been liquidated since the stock market turmoil started in mid June, with nearly half of them cancelled before their original settlement dates, showed data released yesterday by Simuwang, a Shenzhen-based private equity information portal.
The asset value involved was not immediately available.
As a result, the number of private equity funds that closed this year hit a record 799, accounting for nearly a third of funds launched in 2015.
Liquidation, also known as a "full closure", involves the sale of all of a fund's assets and distribution of the proceeds to shareholders. It often occurs after a fund has shrunk more than 10 per cent in value, forcing investors to sell at a loss.
"A number of private equity funds, especially those hedge funds, were forced out as they were no longer able to take profits from short selling after Beijing's sweeping crackdown," said Zhang Gang, an analyst with Central China Securities.
"China's capital market is still very immature in that there is no comprehensive regulatory framework for derivatives trading. Unfortunately, however, many private equity funds in China are overweight on derivatives like futures and options," Zhang said.
Before the stock market turmoil, the mainland witnessed a boom in the private equity industry thanks to a stocks bull run that started in November and at one point sent the benchmark indices to seven-year highs.
The number of private equity funds that emerged over the first half of this year skyrocketed to 4,633, with assets under management ballooning to 1.26 trillion yuan (HK$1.52 trillion), showed data from the Asset Management Association of China. In comparison, 4,796 funds were launched between 2003 and 2014.
Private equity funds tracked by Simuwang on average lost 7.5 per cent in July, down 2.1 percentage points from June, with hedge funds doing particularly badly, with average returns plummeting to 0.87 per cent from 3.56 per cent a month earlier.
