Money

Chinese funds take battle to foreign PE

By Cathy Chan (China Daily)
Updated: 2010-09-29 10:15

HONG KONG - Foreign private equity investment in the mainland has slowed as competition from domestic funds pushed asset prices higher, said Antony Leung, chairman for Greater China at Blackstone Group LP.

Some local funds are more aggressive and tend to outbid overseas buyout firms, Leung said in an interview at the SuperReturn conference in Hong Kong on Tuesday. The absence of a capital shortage and demands for higher valuations for assets also pose challenges to foreign private equity funds, he said.

"Compared with the other countries and regions, mainland is still trading at a premium," Leung said at the conference. "Obviously we can argue that there is growth, but on the other hand, the message is, 'not cheap'."

Completed foreign private equity investments in mainland fell 27 percent to $675 million in the third quarter from the first three months of the year, data compiled by Bloomberg show. The number of transactions fell to 19 from 26, the data show.

Blackstone, based in New York, was the first global private equity firm to set up a domestic buyout fund in mainland last year, followed by Carlyle Group and TPG Inc. A locally registered fund in mainland requires less regulatory approval for some investments and use of foreign exchange, and has better access to local targets, Leung said. Blackstone has raised more than half of the 5 billion yuan ($746.81 million) it aims for and will announce the first closing of the fund when it makes an initial investment, Leung said.

Related readings:  China pension fund to start overseas PE investment  China Huarong sets up PE fund in Chongqing  China Int'l PE forum sees huge deals signed  China's Q3 PE investments up 89% quarter-on-quarter

The firm has made five investments in mainland since it hired Leung in 2007, including a stake in Chinese agricultural products distributor Dili Group Holdings Co this year, and a 20 percent stake in National BlueStar Group, a specialty chemicals maker, in 2008, Bloomberg data show.

Carlyle said in July it raised 2.4 billion yuan for its Beijing local currency fund in its first closing, and plans to double the capital this year. It also received approval in March to form a $100 million fund with Fosun Group, a privately held Chinese company whose businesses span steel, mining and property.

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