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Individual, Wealthy Investors to Flock to China's PE Market, Preqin’s Joyce Says
Hang Yu
DATE:  Jun 13 2022
/ SOURCE:  Yicai

(Yicai Global) June 13 -- China's private equity market will expand with the increasing participation of retail investors and high-net-worth individuals, according to a London-based investment data expert.

“The outlook for private equity secondaries is quite bright in China,” said Cameron Joyce, vice president of the research insights team at Preqin, as he fielded questions from Yicai Global. Below is a transcript of the interview.

YG: Global financial markets dropped sharply this year. Have you seen the same trend in PE and VC?

Joyce: We've certainly seen a great deal of market volatility globally. The global stock market is going through a process of repricing a lot of assets. And that's particularly affecting technology stocks.

On the private side, if we look at private equity and venture capital, these companies have a larger degree of exposure to technology.

So eventually we would expect that new reality to be reflected in private markets as well. But I think the advantage that private markets have is that they are comparatively insulated against shorter-term stock market volatility because managers are not required to mark their positions in public markets.

YG: How much short-term market volatility will there be?

Joyce: I think that volatility in the near term won't affect private markets in the same way that it will affect public markets. I think that in China, obviously, we have a slightly different cycle to what we're seeing globally.

It looks to me like we were closer to the bottom in China and we start to see a new private active cycle as well.

YG: In China, your company has seen a substantial increase in the total amount of raised US dollar funds. What is the reason for this change?

Joyce: That's really reflective of the fact that we do still have quite a robust international investor appetite for Chinese private equity in venture capital. And relatively speaking, renminbi fundraising has come down.

So I think overall, if you look at the structure of the market, Chinese yuan-denominated assets under management through the entire production, venture capital market will continue to be renminbi-denominated. But we'll see a healthy contribution from US dollar funds as well going forward.

YG: Which industries are favored by PE and VC investors?

Joyce: If you look at the total private capital markets in China, venture capital makes up a large portion of the total. There's USD1.3 trillion worth of private capital in China, per Preqin. And of that, USD645 billion is in venture capital alone. So I think that really just reflects the innovation that's taking place in the economy. And that's a relatively high portion compared to the markets that we see globally.

Now, in terms of where those investments are being deployed, we're seeing a great deal of interest in the healthcare and biotech space. And I think there are some very strong structural underpinnings for growth stories in these sectors.

In the near term, we're going to see a more challenging environment for consumer-facing names. But again, it's something where we see very strong structural growth going forward.

YG: What other trends do you expect to see in the Chinese PE/VC market?

Joyce: We think that the outlook for private equity secondaries is quite bright in China. It's going from a relatively low base of activity. When the market scales and becomes more mature, you start to see more secondary and private equity activity.

That's good for both limited partners and general partners because we've obviously had a lot of funds that launched a few years ago, which are starting to approach the end of their lives. Now, the exit environment is quite challenging. So I think secondary funds give LPs and GPs a lot more flexibility in terms of what they want to do going forward.

The trend that we are seeing globally, as well as in China, is increased participation of retail and high-net-worth investors in the market. And then this will be an interesting development going forward because traditionally private-acting adventure capital has been reserved for primarily institutional investors.

YG: Is this a good time for investors to get into this market?

Joyce: I think it certainly is an interesting time for investors to be. If you look globally, obviously we don't have any particular forecast for what's gonna happen in the short term, but valuations are obviously correct and come down to a lot healthier levels.

And the long term, the structural fundamentals underpinning, many of the technologies that venture capital companies tend to back are still very, very strong. I think what we've seen really is a change in the price that investors are willing to pay for those companies. So for investors who are looking at things carefully, I think there will be opportunities.

And particularly in China, there are some macro headwinds affecting China as they're affecting the global market as well at the moment. But I think patient investors looking for opportunities will find interesting ones in the present time. And it's worth noting as well that the selloff in Chinese technology stocks happened a lot earlier than what we saw in the United States so, in many respects, we could be a lot closer to the end of the cycle there.

Editors: Liao Shumin, Emmi Laine, Xiao Yi

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Keywords:   PE,VC