Mainland's new official government policy is to vigorously develop the domestic market to boost returns of pension funds
The private equity landscape in China is undergoing a transformation that will change the way wealthy foreign investors are able to buy into pre-initial public offerings.
And, if trends in investment returns and exits by foreign private equity fund stakes continue tracking downwards as cash-rich local funds expand into the maturing deal market, the days of supercharged profits from private equity deals on the mainland look to be numbered.
In a keynote address in June to a private equity forum in Tianjin, chairman of the National Social Security Fund Dai Xianglong, emphasised China's policy commitment to 'vigorously develop' domestic private equity funds. Backing those words with action, Mr Dai later told reporters covering the forum he had approved the investment by the fund of nearly US$500million in two leading mainland private equity funds, CDH Investments and Hony Capital.
'We must step up the expansion of our investment channels to boost returns,' he told reporters. 'If I only put China's pension money in low-earning deposits, how will I answer to the public?' There is much more to come and domestic buy-out funds stand to benefit from US$7.4 billion in investments after the US$74billion fund later announced it had won approval to allocate up to 10 per cent of its assets to private investments.
The private equity pendulum in China began to swing towards bringing choice investment deals onshore when the central government cracked down in September 2006 through the release of Circular 10, covering mergers and acquisition on the formation by local target companies of offshore holding structures in low-tax jurisdictions, such as the Cayman Islands and British Virgin Islands.
