China's private equity industry is under pressure over long term holdings and diversification in the financial crisis, a PricewaterhouseCoopers report said yesterday.
The private equity industry globally is witnessing a dramatic downturn in deal activity and is suffering from a lack of leverage caused by the turmoil in the financial markets. This has a major impact on the ability to finance larger transactions and also creates a lack of buyers for existing portfolio companies, the accounting firm said.
"Chinese private equity players are not immune from these trends and will need to adapt to the longer term holding periods by looking at how they create value for portfolio companies," said Matthew Phillips, a PwC partner.
"They will also need to consider a wider range of deals including supporting the Chinese companies looking at opportunities which are arising abroad as a result of the credit crisis," said Phillips.
Shirley Xie, a PwC partner, said there are considerable medium-term opportunities for private equity as China's economy continues to grow rapidly and sectors continue to open.
However, challenges lie ahead.
"Specifically, locally based Chinese and offshore boutique private equity fund houses, which raised large sums of money at the end of last year and earlier this year, are faced with a challenge to demonstrate to investors their ability to deliver value at a time of turmoil," Xie said.
The winners will be those that can use their proximity to the market to identify companies that will benefit from changes in government policy and market conditions, Xie said.
In China, private equity investment increased by 3 percent to US$11 billion in 2007, the fourth biggest market in Asia.
Capital raised for investing in the country climbed by 19 percent to US$11 billion last year.
(Shanghai Daily October 21, 2008)
