Top GPs gear up for next round of competition in China

Investors have targeted the top private equity and venture capital firms as they hope to catch the next unicorn.

Many general partners are raising funds to prepare for new investment in China, despite a huge decrease in the amount raised by private equity and venture capital firms.

China Renaissance said on Monday that it had completed fundraising for its third RMB fund at Rmb6.5 billion ($942 million). China’s Social Security Fund, insurance funds and university funds are all included as limited partners.

On the same day, Joy Capital – the backer of Luckin Coffee – said that it had completed fundraising for its $700 million fund. Investors include sovereign wealth funds and family offices.

The fundraising is polarised. On the one hand, Chinese PE and VC firms have received less capital in the first half of this year, according to data from research firm CVSource. About 271 funds in VC and PE firms have raised around $54.4 billion - a 30% decline year-on-year.

But of these funds, the top 12 have raised more than $30 billion – more than half of the total raised. Small funds with disappointing performances are finding it really hard to survive.

Funds are gearing up for the next round of battle. Those which have raised money say that they are still focused on long term opportunities in the Chinese market. There are just too many choices in the markets, which has overwhelmed investors.

Big US dollar funds are favoured by investors. Only 13 US dollar funds completed fundraising in the first half of 2019, but they raised about $14.9 billion which is almost 40% of the total RMB capital that was raised by 257 funds. And more US dollar funds are rising capital at the moment too. 

Notable private equity firms to raise investment in the past 12 months have also raised US dollar funding in the first half of the year. Warburg Pincus, Centrium Capital and DCP Capital have raised at least $2 billion each.

Investors have become cautious and competition is getting fierce. “Previously, there were few good projects in the market and the capital that there was, was sufficient. Now the situation is the opposite,” One private equity investor commented to FinanceAsia recently. “Everyone wants to invest in the next unicorn. China’s VC and PE investment has matured.”


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