China had roughly $65 billion in private equity dry powder in 2013, up about 20 percent from 2012, and the largest amount of any emerging market country, according to data from Bain & Co.
The China data is for country-specific funds only.
Emerging markets as a whole, including China, had roughly $77.5 billion of capital to invest at the end of 2013, according to a Bain & Co report.
Vinit Bhatia, partner at Bain & Co, says the amount of dry powder in China is concerning, but the decline in fundraising is one factor that will likely bring the number down.
Fundraising totals for both RMB and US dollar-denominated funds dropped about 65 percent year-on-year in 2013, according to Private Equity International's Research & Analytics Division.
The other factor is deals. The number and value of private equity investments has been declining by about 40 percent annually since 2011, according to Thomson Reuters data. However, a Q4 2013 pickup in deal activity is expected to continue into 2014, Bhatia believes.
“The domestic IPO market started and stopped and it’s unclear when it will pick up, creating challenges for RMB funds given their business model. From an LP view, there are challenges in calling capital from some RMB funds. That’s part of the reason we see a pickup in deal activity. RMB funds are still on the sidelines, creating more room for [US dollar] funds.”
Founder-led companies still face a difficulties raising capital: there’s a 700-odd queue for domestic IPOs and bank financing is tough to get, he added. “PE is a relatively more attractive option for a lot of mid-size private companies. That kind of opportunity will continue to play out.”
For an in-depth look at private equity in China, be sure to see Private Equity International’s China Supplement in April.