Greater China private equity and VC AUM see 25% growth

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Greater China’s private equity and venture capital (PEVC) industry continues to expand and present policy-aware investors with opportunities, according to the Preqin Territory Guide: Greater China 2022 published by Preqin, the global leader in alternative assets data, tools and insights. 

Regulatory changes prompt investors to seek opportunities in policy aligned sectors 

The report shows Greater China’s PEVC AUM grew by 25% year on year to $1.78tn, of the $1.92tn total private capital industry AUM in the region (as of June 2021). Venture capital AUM, which stood at $675bn (as of June 2021), grew by 34% since December 2020, proof that the asset class is expanding. 

Despite a backdrop of regulatory changes, a total of 5,611 venture capital deals were completed in 2021, up 34% year on year, achieving an aggregate deal value of $133bn, 48% more than the previous year and more than double that of 2019. 

Last year’s regulatory changes sent strong signals to private markets that paying attention to China’s long-term, top-level policy decisions is key to investing in the region. Policy-aligned sectors include electrical equipment, IT, robotics, and new energy vehicles.

Preqin analysts also note the nationwide push toward achieving carbon neutrality by 2060, decarbonization, and ESG disclosure regulations are factors likely to spur investments in sustainability-related sectors, such as NEVs and renewable energy. 

Private Equity fund

In terms of fundraising, Preqin data shows 194 Greater China-focused private equity and venture capital funds closed in 2021, the lowest since 2009, but raised an aggregate of $72bn, surpassing the previous year’s $50bn by 43%. Of this, venture capital raised the most capital at $25bn, or 35% of the total, followed by growth funds, which raised $22bn, or 30% of the total. 

PEVC fundraising remains buoyant despite lower number of funds, with more capital raised by USD funds in 2021 for the first time since 2008. 135 RMB funds raised $27bn, down 34% year on year; while 57 USD funds raised a record $45bn, 49% higher than the previous record in 2019. 

Exits under scrutiny

IPOs are being heavily scrutinized both at home and abroad. Chinese tech start-ups attempting to file for IPOs on US stock exchange are reviewed by both the US Securities and Exchange Commission (SEC) and Chinese regulators.

As IPO exits become challenging, the number of secondary sales to GPs has increased. Fourteen buyout deals were sold and acquired by private equity firms in 2021, more than triple that of 2020.

GPs and LPs have become more cautious toward investing in China. As shown in a survey conducted by Preqin in November 2021, 27% of PE fund managers said that they will be targeting China in the next 12 months, which is significantly lower than 38% in 2020. 

Kebelyn Lee, AVP, Research Insights, at Preqin, says: “Given the difficulties of listing and operating in the US, Greater China focused investors will back domestic companies seeking regional expansion with the prospect of meeting due diligence demand from regulators.

“Technology, new energy vehicles and semiconductors will be the key growth sectors for potential investors, offering plentiful dealmaking opportunities in China’s PEVC industries.

“While challenges in listing may affect long-term investor confidence, they could also contribute to the growth of China’s secondary buyout market.”

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