China’s emerging fund managers are struggling to raise capital due to US trade tensions, a conference has heard.
Speaking at the HKVCA China Private Equity Summit 2019 in Hong Kong on Thursday, James Donnan, managing director of fund administrator Intertrust, said the firm had seen a decline in the number of funds coming to market since December as managers await a potential deal between the sparring nations.
Funds are also taking longer to reach final close as limited partners opt to commit to larger, brand-name managers with more established track records in the region, he added.
“The GPs that are perhaps suffering is the smaller emerging managers; these ones [that] don’t have a track record,” Donnan told delegates.
“Coupled with that, the typical investor base they would target – some of the smaller investors, the high-net-worth investors and some smaller family offices – are sitting on the sidelines these last few months. So they’re struggling to close their funds.”
Capital is flowing towards blue-chip managers. CVC Capital Partners is understood to have raised $3.2 billion in the initial closing of its fifth Asia fund and Warburg Pincus has more than doubled the target for its latest Asia-focused private equity vehicle, which has a large China mandate.
The country’s fundraising slowdown could mark an end to “unsustainable activity” in recent years, Donnan noted. China-focused funds collected $22.8 billion last year, the highest amount raised since 2015’s $13.3 billion, according to PEI data. Average fund size targets have almost doubled in the last four years to $490 million last year.
Total private equity investment value in China rose to $94 billion in 2018, up 64 percent over the previous five-year average, according to Bain & Co’s Asia-Pacific Private Equity Report 2019.
Allianz Capital Partners, the German insurance giant’s in-house investment manager, expects 2019 to be a slower fundraising year for China-focused strategies as LPs “look to rationalise” their China allocations across all PE strategies due to Sino-US trade tensions and slowing growth, director Willa Hong told Private Equity International in January.