American PE investments in China surge amid trade tensions

M&A and private placements by US-based GPs into China have reached $25.8bn this year so far, an almost five times increase from a year ago, according to data from S&P Global Market Intelligence.

US private equity firms are investing more capital in China than a year ago, despite the rising tensions between the two nations under the Trump administration.

A total of 150 private equity transactions, amounting to $25.8 billion, were announced from January to mid-August of this year, a significant jump from the same period last year where 73 deals worth $5.2 billion were announced, according to S&P Global Market Intelligence data.

“Although political tensions are high in Sino-American relations, the private equity industry is seemingly unfazed, or have yet to react, as capital inflows into China from US investors have increased nearly five times in 2018 YTD, compared to what it was in the same period in 2017,” said Olga Parfiryeva, private equity specialist at S&P Global Market Intelligence.

The rise in transactions is more noteworthy in private placements than buyouts, Parfiryeva noted.

US private equity investors have so far completed three M&A deals amounting to $22 billion this year, while private placements stood at $23.8 billion across 147 deals. The largest private placement deal this year was Hangzhou-based Ant Financial Services Group’s Series C funding round that secured $14 billion. US investors in the fund include Warburg Pincus, Silver Lake and General Atlantic. Canada Pension Plan Investment Board, Singapore’s GIC and Temasek and the Malaysian state investor Khazanah also participated in the funding round.

On the flipside, transactions by Chinese investors into North America have fallen to $4.7 billion in the first half of 2018. The total value has dropped almost 50 percent year-on-year from $9.4 billion in the first half of 2017, according to the Asia-focused investment banking advisor BDA Partners.

China-US acquisitions are expected to face even greater scrutiny in the near-term as the US Congress passed the Foreign Investment Risk Modernisation Act earlier this month. FIRRMA strengthens the Committee on Foreign Investment in the United States to more effectively guard against the risk to US national security posed by certain types of foreign investments.

According to industry observers, FIRRMA could impact private equity firms contemplating exits for their portfolio companies, especially if the buyer is Chinese. US GPs will now also have to examine future fundraising avenue, as well as the level and nature of foreign LP ownership.