RMB funds dominate Chinese fundraising

Fundraising figures for 2009 show that for the first time ever RMB-denominated funds surpassed those raised in dollars.

For the first time ever, 2009 saw private equity funds denominated in Chinese yuan raise more capital than US dollar-denominated funds for investment in China, a study has revealed.

In all, 30 private equity funds either investing only in China or with exposure to China raised $13 billion, according to data from Zero2IPO Research Centre, a Chinese venture capital and private equity service provider. These numbers do not include funds raised for venture capital investment.

Of these funds, 21 were denominated in the local currency while the remaining nine were denominated in US dollars. In terms of capital raised, RMB funds garnered commitments equivalent to $8.73 billion while US dollar funds raised $4.23 billion, the Zero2IPO report stated.

However, the total fundraising numbers slumped in 2009 compared to the previous year. The $13 billion raised was only about one-fifth of the $61.2 billion that funds investing in China raised in 2008. The total number of funds also declined from the 51 raised in 2008.

Growth capital remained the most attractive segment of the market with 25 of the 30 funds raised for China focused on this segment. These funds raised capital worth $10.1 billion, a 31 percent decline in the number of funds and a 73.6 percent decline in the capital raised as compared to 2008. Last year, three buyout funds raised $2.3 billion.

As elsewhere, according to the Zero2IPO statistics private equity investments in China declined in 2009 as well. The country saw $8.7 billion invested across 117 transactions in 2009, a decline of 9.9 percent in terms of capital invested and a 25 percent decrease in the total number of investments.

On a positive note, though, the total number of exits in 2009 increased to 80 from 24 a year earlier. This was largely due to an uptick in the stock markets in the Greater China region, resulting in 71 exits through IPOs.

2009 was also the year in which the Chinese government permitted foreign private equity firms to establish funds denominated in the local currency for the first time. Firms such as The Blackstone Group, First Eastern Investment Group, CLSA Asia-Pacific Markets, Abax Global Capital and Prax Capital announced plans to set up RMB funds in the country last year. Swiss fund of funds manager Adveq also disclosed it has formed a joint venture to raise an RMB-denominated fund of funds as well.

The momentum seems to have coninued into 2010. Two weeks ago, The Carlyle Group said it was setting up an RMB fund in Beijing to take advantage of an initiative launched by the local governmnet to attract foreign private equity firms to the Beijing area.