Local yuan funds need big China Inc for financing -banker

By George Chen and Helen Ding

SHANGHAI, March 18 (BestGrowthStock) – China, already a red hot
destination for private equity investments, should let more
domestic institutions such as banks and insurers help finance
local yuan funds amid growing competition with foreign firms.

Xu Xiaolin, managing director of CCB International Wealth
Management Ltd, expected the total size of private equity and
venture capital funds for investments in China could rise at an
“explosive pace” to over 2 trillion yuan ($293 billion) in the
next decade.

A combined $12.9 billion of capital was raised for private
equity and venture capital funds for China deals in 2009, Xu said
at the ChinaVenture Investment Conference in Shanghai.

“In the past 10 years, the changes and developments in
China’s private equity industry were big but not big enough, and
we expect the next 10 years will be the golden age for private
equity dealmakers in China,” said Xu.

CCB International Wealth Management Ltd is a unit of China
Construction Bank (0939.HK: ) (601939.SS: ), intended as a platform
for the country’s top property lender to expand into the
fast-growing private equity business and explore new profit
streams as Beijing tightens credit to curb bank loan expansions.

Xu also said there were many problems in the development of
China’s private equity industry, with “one top concern the lack
of leading and professional limited partners (LP),” referring to
institutional investors in private equity funds.

The largest and most professional LP in China so far is the
National Social Security Fund (NSSF), China’s $80 billion pension
fund, said Xu.

He said adding Beijing should allow more cash-rish firms to
become professional LPs to finance local yuan funds.

“You can’t only rely on the NSSF, so there should be more
channels for fund-raisings,” said Xu.

“I expect banks, insurers and major state-owned enterprises
all want to and will join the growing team of China LPs to help
launch local funds,” he said.

CCB International currently manages six local currency
yuan-denominated private equity funds and Xu said he expected its
total amount of money under management would exceed 10 billion
yuan at the end of 2010.

Domestic banks and insurance companies are not allowed to
invest money directly into private equity funds, but many,
including China Construction Bank and Ping An Insurance (Group)
Co of China Ltd (601318.SS: ) (2318.HK: ), are launching local funds
indirectly via subsidiaries or partners.

Xu noted Beijing should further relax rules to allow domestic
firms to raise private equity and venture capital funds more
quickly and easily.

Foreign investors such as U.S. buyout giant Blackstone Group
(BX.N: ) are also rushing to China to raise yuan funds to focus
more on the world’s No.3 economy.

Beijing welcomes private equity funds as a means to boost the
domestic economy and create more local jobs but is also concerned
speculative money inflows may cause some sectors to overheat.

The share of yuan funds exceeded that of dollar funds raised
for private equity firms focused on China in 2009 for the first
time, according to the Centre for Asia Private Equity Research in
Hong Kong. Click here for a graphic:

Investing Research

(Editing by Jonathan Hopfner)
($1=6.825 Yuan)
([email protected]; +852 2843 6532; Reuters Messaging:
[email protected]))

Local yuan funds need big China Inc for financing -banker