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ChinaAn Overview of Trends in Select Sectors and Markets January 2009 Country Snapshot hina’s private equity industry experienced unparalleled growth in 2008 with 2008 China population: 1.3 billion funds raised for China-dedicated funds increasing by 270% over 2007 totals, 2008 GDP: US$4.2 trillion and capital invested rising by 18%. The rapid development of the asset class in 2008 GDP per capita: US$3,180 C 2008 GDP growth%: 9.0% China contrasts with a slowing economy—near-zero growth in the fourth quarter of 2008 led to revised 2009 estimates of between 6% and 7.5%, versus the 9%+ GDP growth 2009 projected GDP growth %: 6.7% originally projected. The impending slowdown in industrials and manufacturing and the 2008 Current Acct. Balance: US$399 billion resulting job losses are expected to take the shine off of China’s heretofore strong do- Source: IMF. mestic consumption story and could potentially contribute to growing political instability. Despite these challenges, private equity investors with capital to deploy stand to gain from a more investor-friendly buying environment and opportunities opened up by size- able stimulus package spending in 2009. Fundraising Trends While developed markets saw private equity fundraising decline by 15.7% in 2008, capi- tal raised for Chinese private equity broke records.1 Funds focused on China accounted for 37% of total funds raised for Asia in 2008, versus 14% of the 2007 total. The US$14.5 billion raised by 48 China-focused funds in 2008 outstripped in one year alone the US$11.2 billion raised between 2001 and 2007. The bulk of fundraising ac- tivity took place in the first half of 2008 with US$11.2 billion (77% of the total) raised by 36 China-focused funds, a 240% increase over the same period a year before. The continued on page 2 1 Source: Based on developed markets data from Dow Jones Private Equity Analyst and Asia Private Equity Review. China PE Fundraising and Investment Totals (2005–2008) 15 Fundraising 12 Investment 9 6 US$ Billions 3 0 2005 2006 2007 2008 Source: Asia Private Equity Review, EMPEA. © 2009 Emerging Markets Private Equity Association 1 EMPEA Insight: China January 2009 pace slowed significantly in the second half of the year, with 12 Number of Pan-Asia and China-focused Funds funds raising US$3.3 billion. Despite the dramatic slowdown, Launched by Year (2005–2008) the US$3.3 billion raised in the third and fourth quarters alone 100 was comparable to the US$3.9 billion raised in all of 2007. Pan-Asia 88 Fund sizes grew slightly in 2008, rising from an average fund 80 China-focused size of US$222 million in 2007 to US$262 million in 2008. China’s venture capital market remained robust, comprising 60 57 42% of the number of funds with closes in 2008 and 26% of capital, versus 47% of funds and 25% of capital raised in 2007. 40 Funds with a growth/expansion approach represented a third of 34 Number of Funds 29 the number of funds holding closes in 2008 and 32% of capital 25 24 20 raised, compared to 44% of funds and 46% of capital in 2007. 6 6 China-focused buyout funds remain uncommon; only three held 0 closes in 2008—the same number as in 2007. However, the 2005 2006 2007 2008 US$5.4 billion they raised accounted for 37% of total capital, Source: EMPEA. versus US$1.1 billion in 2007 (29% of capital). two companies, Tianjin Pipe and a Chengdu commercial bank, Expanding on the trend towards megafunds in Asia, three China- both in 2007. The Fund made no investments in 2008 and is dedicated funds surpassed the US$1 billion mark. Hopu Invest- reportedly mired in management difficulties. The 10 such funds ment Management Company raised a US$2.5 billion inaugural approved to date by the National Development and Reform fund with an investor base including Goldman Sachs and Te- Commission (NDRC) have shown little activity, leading some ob- masek Holdings. Blue Ridge China and Hony Capital closed servers to wonder about the viability of the model. funds at US$1.45 billion and US$1.4 billion, respectively. Foun- The number and diversity of foreign LPs in China-focused funds tainvest nearly passed the US$1 billion mark, closing China continues to grow. CalSTRS committed to its first China-dedi- Growth Capital Fund at US$950 million. continued on page 3 In the wake of government efforts to promote domestic private equity, locally-domiciled Renminbi (RMB)-denominated funds EMPEA Insight have bloomed. Data provider Zero2IPO estimates that as many Editorial Director Jennifer Choi as 108 such funds came to market in 2008, versus 41 RMB [email protected] 2 funds launched in 2007. Foreign firms that have capitalized Writing and Research Alexander Adrian / [email protected]; on the opportunity by launching joint venture RMB funds with Harrison Moskowitz /[email protected]; Holly Freedman / [email protected] local GP partners include SAIF Partners, Legend Capital, North- ern Light and iD TechVentures (iDT). Local teams managing Production Manager Cristiane Nascimento [email protected] RMB funds tapping the local institutional investor base include Advertising Opportunities Sequoia Capital, Hony Capital and CDH Investments. So-called EMPEA Insight offers readers an overview of the data and drivers “pure” (i.e., local investors and local fund managers) RMB funds behind investment trends in emerging markets private equity. tend to be smaller, have shorter fundraising periods and life- Each issue of EMPEA Insight provides an opportunity for a single times, and have LPs that are generally more actively involved in exclusive back page advertisement. Issue-specific placements are investment decisions—in line with Chinese investor culture. on a first come, first served basis. For a list of upcoming issues and more information about advertising opportunities and rates, contact Other government efforts to cultivate a domestic private equity Cristiane Nascimento at [email protected]. industry have included the launch of several state-backed in- About EMPEA dustrial private equity investment funds. The first and largest The Emerging Markets Private Equity Association is a broad-based of these, the Bohai Industrial Investment Fund, was launched membership organization founded in 2004 that focus on the emerg- ing private equity markets of Africa, Asia, CEE, Russia/CIS, Latin in December 2006. To date, the Bohai Fund has invested in America, and the Middle East. 2 The proportion of such funds achieving closes in 2008 has not been verified. 2 © 2009 Emerging Markets Private Equity Association January 2009 EMPEA Insight: China Sampling of RMB-denominated Private Equity Funds Fund Name Fund Manager RMB Millions (US$ Millions) Tianjin CDH Investments Fund I CDH Investments RMB 5,000 (US$716) Chengdu Investment Holdings Group Chengdu Investment Holdings Group RMB 3,000 (US$437) Mianyang Technology City Industrial Inv. Fund CITIC Industrial Investment Fund Management Co. Ltd. RMB 6,000 (US$876) Jinshi Investment Co. CITIC Securities Co. Ltd. RMB 831 (US$111) Dohold Capital Dohold Capital RMB 1,000 (US$145) SAIF Partners Yuan-Denominated SAIF Partners RMB 1,600 (US$233) Hony Capital Industry Fund I (Tianjin) Hony Capital RMB 5,000 (US$716) Overseas Chinese Investment Fund Friedmann Pacific Asset Mgmt. Ltd., Raiffeisen RMB 5,000 (US$715) Pudong Hi-Tech Industrial Fund SB China Venture Capital RMB 1,500 (US$220) Sequoia Venture Capital Sequoia Capital Investment Management (Tianjin) Co. Ltd. RMB 1,000 (US$130) Fortune Wealth Fund I Shenzhen Fortune Venture Capital Co. Ltd. RMB 500 (US$72) Zheshang Blue Stone Venture Capital Fund Sinowisdom RMB 350 (US$50) Source: Asia Private Equity Review, EMPEA. Number of RMB-denominated Private Equity and Venture Capital Funds Launched by Year (2007–2008) billion National Social Security Fund (NSSF) has committed 100 US$735 million to four local private equity funds including funds 88 Private Equity managed by CDH Investments and Hony Capital. The NSSF an- 80 nounced in December 2008 that it would invest 10% of assets Venture Capital unds 60 under management to private equity as part of a state-backed effort to stimulate financial markets and expand domestic con- 40 Number of F 29 sumption. Ping An (China’s second largest insurer by value of 20 premiums) set up a joint venture fund with private equity firm 20 12 Value Partners, seeding US$292 million to the pre-IPO fund. 0 2007 2008 A 2008 Securities Regulatory Commission (CSRC) pilot program Source: Zero2IPO Research Center. authorizing securities firms to invest in the asset class has been cated fund with US$200 million in 2008 (fund name not dis- expanded to 10 firms including CITIC Securities, Guosen Securi- closed). Development finance institution CDC Group continues ties and Haitong Securities. CITIC launched its own private eq- to be an active investor in Chinese private equity with commit- uity practice in 2008 after failing to win regulatory approval for a ments to four domestic funds in 2008: US$30 million to Tripod US$1 billion joint venture with Starr International. Capital China Fund II, US$25 million to Qiming Venture Partners II, US$40 million to Fountainvest China Growth Fund and US$10 Investment Trends million to Legend Capital IV. Newcomer Fountainvest, which Private equity funds disbursed US$11.2 billion in capital across closed on a US$950 million debut fund in November 2008, 244 deals in 2008 representing an 18% increase over the counts among its investors Canadians CPP Investment Board US$9.5 billion invested across 240 deals in 2007. The aver- and Ontario Teachers’ Pension Plan as well as the Washington age size of investments increased slightly to US$46 million State Investment Board.
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