Study: Public companies invest more in China PE

Publicly-listed companies are becoming major investors in China's PE firms, second only to public pensions, according to research firm Zero2IPO.

Publicly-listed companies have provided about 25 percent or $212 billion of the country’s private equity capital this year, even though they make up less than five percent of the LP pool in China, according to a recent report from Zero2IPO.

Of the 7,000 LPs that invested in China in the first three quarters of 2012, only 315 (or 4.5 percent) were publicly-listed companies, according to the report. Out of these companies, 216 were listed in Shanghai or Shenzhen, and the rest were listed in Taiwan, Hong Kong or on international stock markets.

On average, each public company committed $673 million to various private equity vehicles over the first three quarters of 2012.

Only China’s public pension funds invested more, with an average of $1.7 billion.

“A trait of public companies investing in private equity is that the investments are often large, and it brings fresh blood into a market with a scarce supply of capital,” the report said.

The role of listed companies as LPs has become more evident this year. An earlier report from Zero2IPO showed that publicly-listed companies comprised only 3 percent of China’s 6,000 LPs in the first half, yet committed $205 billion.

However, Campbell Lutyens Asia Pacific partner Conrad Yan believes that this trend toward public companies will decline over time, giving way to insurance and pension funds. Most of the time, public companies do not invest unless there is a strategic reason to, Yan told PE Asia.

Another group of investors, families and individuals, have grown in number to about 3,500 at the end of Q3 from 3,000 in the first half. The value of their investments has increased to $7.7 billion from $6.4 billion.

At the end of Q3, family and individual investors made up only one percent of China’s LP investments, while accounting for more than half of the LPs in China, according to the report.

However, Yan pointed out that some high net worth individuals also happen to be the owners of public companies. Therefore, the data for public company investment could in some cases be more accurately attributed to the category of high net worth individuals because they often make personal investments through their companies.