By George Chen
(Reuters) – Ten new China-focused private equity funds raised $12 billion in the second quarter, but poor market conditions have forced foreign funds to delay exits of their investments through IPOs and secondary offerings, consultant firm Zero2IPO said on Thursday.
The second-quarter figure is up 107.6 percent from the same period of 2007 but down nearly 40 percent from the first quarter of this year, according to the firm’s quarterly report. Some 8.1 percent of capital raised by the 10 funds in the second quarter, or $972 million, target investments in Chinese property markets despite China’s tight monetary policy, which may hurt its real estate industry.
Meanwhile, private equity firms invested $2.56 billion in 37 Chinese enterprises, with 63.3 percent of the private equity firms’ total quarterly investments in traditional industries, according to Zero2IPO.
In the second quarter, exits of investments led by private equity firms remained stagnant, decreasing 37.5 percent from the first quarter due mainly to the worsening of both global and domestic capitals markets and strict approvals for domestic IPOs, according to the report.
“We estimate when the stock market begins to see signs of a rebound, there will be more exits especially in the forms of IPO and secondary offers,” Zero2IPO analysts wrote.
The benchmark Shanghai stock index .SSEC has lost more than 50 percent so far from its peak last October, forcing the government to delay the launch of China’s Nasdaq-style market for small- and medium-sized enterprises.
Global private equity firms such as Carlyle Group and Warburg Pincus have been rapidly expanding their investments in China to take advantage of the country’s double-digit rates of economic growth and to diversify their holdings as the U.S. economy reels from a credit crunch.
Many fund houses have complained, however, that it is expecially tough to make investments in China, where private equity-owned companies face difficulties securing government approval for a public listing on the domestic stock markets. That has at least temporarily eliminated a key avenue used in other countries to exit investments.
Even so, global venture capital firms’ fund-raising and investment activities remained strong in China, since Beijing has also encouraged local city governments to team up with foreign capitalists to develop yuan-denominated investment funds, mostly targetting high-tech or innovative new businesses.
In the second quarter, a total of 40 venture capital funds collectively raised about $3 billion, marking a record for a single quarter, Zero2IPO said.
Among the 40 funds, seven were launched by foreign venture capital firms, which raised a total of $1.7 billion. These new funds included IDGVC, Qiming Venture Partners and Intel Capital, an investment arm of top chip maker Intel Corp.