RMB fundraising in freefall

The total capital raised in China’s domestic currency this year is down 70 percent from the 2012 totals.

RMB fundraising totals to November fell about 70 percent to RMB 11 billion (€1.37 billion; $1.84 billion), continuing a multi-year slide, according to Private Equity International’s Research & Analytics division.

Last year, RMB funds raised the US dollar equivalent of $6.2 billion.

The drop is even sharper when compared to 2011, when domestic funds attracted $26.7 billion.

This year’s total is across 14 funds compared to 33 funds last year. Funds closing this year include Hony Capital’s RMB 1 billion mezzanine fund and an RMB 1 billion vehicle from Tiantu Capital. 

Goldman Sachs closed the largest RMB fund this year on RMB 3.5 billion, down from its original target of RMB 5 billion.

Lack of exits and domestic LP disillusionment with RMB fund managers are a primary reason for the plunge in fundraising. GPs continue to hold portfolio companies that were intended to be exited through IPO, though China’s IPO markets have been frozen for more than a year as regulators reform the listing process. No official date has been set for re-opening. 

Chris Lerner, who leads the Shanghai practice of Eaton Partners, attributes the drop to a pullback from high net worth individuals and state-owned enterprises, which made up the bulk of the RMB fund investor base. “The will to make new investments from state-owned enterprises that backed a lot of the onshore funds hasn’t been there.”

“Exaggerated swings in sentiment for a relatively new product in a developing market is not uncommon, particularly with regard to high net worth individuals,” he said, adding that wild swings  are also evident in other capital markets in Asia. 

PEI’s data also suggests that negative investor sentiment toward China continues to extend beyond the domestic private equity industry. US dollar denominated funds targeting China were also down substantially to $2 billion (to November) from $8.3 billion the previous year.