Chinese LPs to target offshore PE

Chinese investors continue to increase their offshore direct investments and will begin to target foreign private equity funds to diversify their portfolios, according to cross-border firm A Capital.

Vast amounts of untapped capital in China will likely find its way into offshore private equity funds, according to André Loesekrug-Pietri, chief executive and founding managing partner of Euro-Asia private equity fund A Capital.

“It is still early days for the Chinese,” he explained to Private Equity International, adding that the $560 billion and $390 billion invested in offshore funds last year by European and US LPs, respectively, dwarfed the $78 billion invested overseas by the Chinese.

Last year, Chinese direct investment increased by 14 percent from $68 billion during 2011, according to data from the A Capital Dragon Index 2012. Loesekrug-Pietri believes Chinese investors will be a significant source of capital for GPs globally going forward.

Chinese investors will probably become an important force in international fundraising. We see a lot of [institutions] going in that direction

André  Loesekrug-Pietri, CEO and founding managing partner, A Capital

“Chinese investors will probably become an important force in international fundraising. We see a lot of [institutions] going in that direction. [As well] the regulatory evolution of the insurance companies [now allows them] to put some of their capital into alternative assets,” he said. 

“I think Chinese LPs, corporate investors and family offices or wealthy individuals in China will begin to think about diversifying their assets globally and I think they are going to be an interesting investor for private equity globally.”

Some industry sources have previously voiced scepticism over the impact of regulations allowing Chinese institutions to invest in private equity overseas. This includes those released by the China Insurance Regulatory Commission (CIRC) that would allow Chinese insurance companies to invest in private equity in 45 countries and regions, which PEI reported on earlier. 

However, Loesekrug-Pietri doesn't share the scepticism. 

“What is clear today is if you are investing in a transparent company, [foreign investment] is encouraged. The days when there were worries about money flowing out [of China] and huge volatility are gone because now outbound investment is in the [government] plan and is encouraged. So if a deal makes sense, we have not seen any cases where [it] has been blocked for inexplicable reasons.”

He added that even if some institutions do not get approvals, most have Hong Kong-based entities through which they can invest. 

The A Capital Dragon Index also showed that during 2012, the PRC's sovereign wealth fund the China Investment Corporation was the top Chinese investor with $2.23 billion in overseas commitments. The firm is one of China’s most prominent private equity investors and will likely encourage other institutions in the country to commit capital to the asset class, according to an industry source. 

Other institutions in the top 10 were Bright Food, which last year acquired 60 percent of Weetabix from UK-based private equity firm Lion Capital, which remains a significant stakeholder in the business; and Dalian Wanda, a private Chinese conglomerate and Asia’s top cinema line, for its $2.6 billion acquisition of US-based AMC Entertainment from private equity firms Apollo Global Management, Bain Capital, The Carlyle Group, CCMP Capital Advisors and Spectrum Equity, PEI reported earlier.

A Capital provides private equity funding to Chinese companies expanding into Europe. It also co-invests with Chinese strategic investors into European mid-market companies, establishing partnerships between European businesses developing their presence in China. 

The firm held a first close in May 2012 on its €250 million vehicle, garnering commitments from CIC and Belgian Federal Holding and Investment Company, according to PEI's Research & Analytics division.