Fundraising dynamics shift in China

As RMB fund managers struggle to raise US dollar vehicles, local governments are stepping in to support them, according to panelists at the HKVCA forum.

Private equity firms that have historically raised RMB funds will have a hard time raising capital from US dollar investors if they do not have institutional processes, according to Choon Cheong Loh, senior vice president at Portfolio Advisors in Hong Kong. 

Speaking on a panel at the HKVCA China Summit 2013, Loh explained that RMB funds aren’t attractive to sophisticated foreign LPs as they have no track record of US dollar investing so will have to continue to raise RMB-denominated vehicles.
 
“When they come to us, it is really difficult for us to take them seriously because they have no track record of [managing] institutional money, so those RMB fund managers that have been dependent on the money of high net-worth individuals will have a hard time. [But] if the RMB fund manager has an institutional process, if they actually add-value and find the right companies, we find those are fund managers [international LPs] will look at.”

It is really difficult for us to take them seriously because they have no track record of [managing] institutional money, so those RMB managers that have been dependent on the money of high net-worth individuals will have a hard time.

Choon Cheong Loh, senior vice president, Portfolio Advisors

Few managers have had known success in switching from RMB to US dollars, however many are trying. For example, RMB fund manager Oriental Fortune Capital has solicited the services of an international placement agent to raise its first US dollar vehicle targeting $100 million, according to industry sources. 

However, local governments are also stepping in to fill the funding gap left by high net-worth individuals in China that are committing less and less to China’s private equity market, according to Shirley Xie, partner at PricewaterhouseCoopers in Hong Kong. 

“Even though the interest in RMB has significantly died down since 2009-2010, we have seen a lot of government-directed funds flowing into them. The provincial, municipal governments [have been funding] their localities, so they are willing to invest money as a seed investor,” she said. 

Despite government support, RMB fundraising has dwindled. A total of RMB 39.4 billion (€4.8 billion; $6.3 billion) was raised by private equity in 2012, a 50 percent drop from the RMB 79 billion raised in 2011, according to figures from Private Equity International’s Research & Analytics division.