Wu Yibing: GPs must prove themselves to Chinese LPs

The president of CITIC Private Equity Funds Management says the lack of track record of private equity in China is the single biggest hurdle facing the development of a local LP base, above regulatory issues.

Wu Yibing, president of CITIC Private Equity Funds Management, says that lack of confidence in GPs' abilities rather than regulation is preventing potential domestic LPs in China from making commitments to the country’s private equity industry.

“I want to be clear that it is not regulations that pose a bottleneck for private equity, but whether people want to open their wallets,” he said in a recent interview with PEI Asia magazine.

“As of now in China, domestic LPs believe there is no one to trust and they trust themselves the most.”

Wu says it is essential that domestic and foreign firms alike work together to build a track record and increase understanding of private equity, in order to “give more confidence to regulators and investors”.

“Investing is a track-record based industry and if we can do good things, then the industry will grow,” he says, adding: “If we get into vicious competition and make grossly-overpriced investments, then we will destroy value for shareholders and people will question what we are doing.”

As private equity builds its track record and domestic institutions realise “the stock market is not an automatic cash machine”, Wu says he expects to see “more positive openness to private equity” from potential LPs.

“As the industry becomes more mature, I don’t think the amount of capital available will be a major bottleneck, though [LPs will be] very selective.

“Currently the total commitment to private equity in China is probably less than it is just in the state of California, and the growth potential is substantial,” he says.

CITIC Private Equity is the private equity platform of state-backed CITIC Securities, which closed its debut private equity fund on RMB9 billion ($1.3 billion) in January, making it the largest fund ever raised in Chinese local currency.

Wu was speaking to PEI Asia magazine for its Exchanges section, which features an interview every month with a key industry professional. The full interview will appear in the April issue of the magazine, which focuses on private equity in China.