Private equity firms turn increasingly to China as their home markets in Europe and especially the US are dropping very fast, argues Shaun Rein, Managing director of China Market Research (CRM) today in Business Week.
My firm, the China Market Research Group, conducted interviews with managers at several dozen leading private equity firms in the U.S. and China to see if China is likely to remain a hot market for private equity, or if the credit squeeze will hit the region, too. Our findings showed optimism for investment in China. The vast majority of respondents felt that U.S. private equity investing will remain flat or drop in 2008 while China will post 30%-plus annual growth for the next three years.
In recent years, China has been a tough market for private equity, with too much money chasing too few deals, a booming local share market causing sky-high valuations, and regulatory hurdles hindering investment in certain sectors. Moreover, investors are also worried about the lack of financial transparency at many Chinese companies. While some of those obstacles remain serious, successful exits recently by Softbank and GGV from Alibaba, and Morgan Stanley (MS) and Crescent Point from footwear manufacturer Belle International show returns can be had for the savvy investor.
According to Shaun Rein, the days when it was hard to find good deals for private equity firms are over, now a substantial middle class is emerging from China’s booming economy. Additionally, because of the drop of the Chinese stock markets, promising Chinese companies cannot get there a high valuation like in the past and have to look for alternative funding.
Shaun Rein is available as a speaker. Are you interested? Do drop us a line.