FoF to better regulate PE industry

15:48, December 29, 2010      

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Over the last few years, private equity has developed rapidly in China. And as with much in finance, quick development doesn't necessarily mean smooth development. But fund of funds can be a useful tool - they can better regulate the PE industry and inject more capital into the real economy.

With several thousand private equity firms around the globe, FoFs have become an important financing channel, in addition to bank loans and IPOs. In the west, PE capital accounts for about 4 to 5 percent of the country's total GDP. In China, the industry is just kicking off. Analysts say that a good fund of funds can help PE function more effectively, and look to long term investments.

Chen Yuan, Chairman of China Development Bank said "The basic principle of our investment is that we would not participate or invest in areas and industries which have a bubble or big risk. We are focusing on innovation-driven industries, high tech industries which play a crucial role in the development of the nation's economy. The money will eventually flow into certain companies. These companies are components of the real economy. Thus we can promote the development of the real economy through the operation of the fund of fund, and accelerate the upgrade of our economy."

Liu Haifeng, Global Partner of KKR Investment Consulting Co., Ltd. said "Good PE is not based on short term investment or speculation. A good PE firm will need long term investment and help. What the firm invests in, to make the cake bigger... only by doing this, will there be long term returns. There will be barriers in any emerging market on the long term investment. PE firms should keep these barriers in mind, and help the invested companies to improve."

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