Yuan-based funds end up dominating capital raising, reveals PwC

Yuan-denominated private equity and venture capital funds accounted for over three quarters of the capital raised in the mainland PE and VC markets last year.

Investors actively looked for opportunities in tech industries, according to a new report issued by international accounting firm PricewaterhouseCoopers.

The report said that as China resumed initial public offerings in 2014, the Chinese PE and VC market had gradually recovered with fast-growing renminbi funds becoming a dominant force in 2015 and 2016.

It said driven by expectations about the fast-growing technology sector, there was rising demand for fundraising amid heightened consolidation and accelerated expansion in the fintech and financial payment sectors.

The new report found that PE and VC investors have shown keen interest in opportunities in the technology industries, including the internet, information technology, telecommunications and biotechnology sectors.

"RMB funds are being increasingly used to finance innovative high-tech sectors to identify opportunities in a slowing economy," said Amanda Zhang, PwC's North China private equity group leader.

"In the past two years, large-scale investments occurred in the mobile internet and high-tech sectors, involving both early-stage startups and established companies that have benefited from industry consolidation," Zhang said.

She said the developed capital markets and the strong M&A sector had provided diverse channels for investors to exit, or cash out from their invested companies.

The report also said yuan-denominated private equity and venture capital funds were stepping up their pace of moving abroad. It said they were looking for overseas companies that were serving the Chinese market, or purchasing foreign assets and selling them to A-share listed companies.

"As there are not enough high-quality assets for reasonable prices at home, Chinese A-share listed companies hope to partner with private equity firms in cross-border M&A transactions, by leveraging their expertise in financial counseling and target selection," said Ni Qing, PwC China private equity group partner.

The report added that RMB funds were gradually moving from traditional financial investors to strategic investors.

It said PE and VC fund managers were now placing greater emphasis on the concentration and consolidation of the sectors the target companies operated in, aiming to secure stable returns in both the primary and secondary markets.

"Chinese regulators released several policies, which include embracing a new era of asset management, advancing State-owned enterprise mixed ownership reform, and developing multi-level capital markets," said Gao Jianbin, a partner at PwC China.

"All of these pushes forward the development of RMB funds so that fund managers are underpinning value creation－they are not satisfied with being only fund providers, but also willing to become active strategic investors."