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PE firms facing struggle

By Wang Xinyuan (Global Times)

13:44, November 01, 2012

Private equity firms are finding it hard to raise funds and to make money amid the sluggish economy, but opportunities still exist, market insiders said at a private equity forum held in Beijing Wednesday.

The private equity business has cooled down since the second half of 2011 and has not revived since, with firms suffering difficulties in raising funds, finding investment opportunities and cashing in on their investments, said Deng Feng, founder and managing director of Northern Light Venture Capital, at the forum.

China's sluggish stock market and the slowdown in regulatory approval for initial public offerings this year made it hard for PE firms to cash in by selling the shares they hold in companies, said Gan Shixiong, managing partner and CEO of Gopher Asset Management.

This also made it tough for the firms to raise money, as individual and institutional investors have become more reluctant to invest, he said.

Many sectors including clean technology and traditional energy have also suffered from the sagging economy and weakening external demand, while China's solar energy sector suffered setbacks in the US and European markets due to antidumping probes.

Even the Internet sector, which was favored by many PE firms last year, saw a slowdown in the number of deals with PE firms in the third quarter of this year, with the number of transactions hitting a two-year low, according to statistics from consulting firm ChinaVenture.

"By the end of September this year, we had invested in only one project," said Zhou Zhixiong, managing partner with Keytone Ventures, noting that the company invested in far more projects last year.

"It takes a longer time, currently three to four months, for us to make an investment decision, unlike last year when partners had to make decisions within a month, or the project might be taken by another PE firm," said Xu Xiaolin, general manager with CCB International Wealth, at the forum.

China's PE sector has been developing quickly in recent years. By August this year, China had 5,011 PE firms, caixin.com reported last week, citing statistics from a survey conducted by the National People's Congress of China.

A reshuffling of the PE sector is expected, said Gan from Gopher Asset Management.

However, even though activity in the PE sector has slowed down, many PE firms believe better times for investment are coming, as prices are falling back to a reasonable level.

As there are less funds available for investment this year, businesses owners who are in need of PE investment are willing to sell stakes in their companies at lower prices, said Zhou of Keytone Ventures.

As China is trying to restructure its investment and export-driven economy toward a model based on growth of consumption, now is the right time to invest in consumption sectors like healthcare and education services, many PE partners said at the forum.

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