Global Fund Managers Capitalize on Lucrative Opportunities in China’s Private Markets Amid Geopolitical Tensions

Despite mounting geopolitical tensions between China and the US, global fund managers are actively expanding their private markets activities in China, seizing lucrative investment opportunities in private credit, private equity, and distressed debt assets. International firms such as BlackRock Inc, Schroders PLC, and AllianceBernstein Holding LP are among those strategically acquiring mainland China assets, often at discounted prices.

One attractive target for these fund managers is software and services companies with robust revenue streams but limited tangible assets. Simon Chan, Director of the Asia Pacific private credit team at BlackRock, highlighted that such companies face challenges securing funding from traditional channels, leading them to seek private sources. This financing gap provides an opportunity for BlackRock and other firms to step in and provide much-needed capital.

Schroders, on the other hand, has found success in China’s yuan-denominated private equity secondaries market. While US-dollar fundraising for China private equity deals has slowed, local currency fundraising remains active. In the yuan private equity funds, a significant portion of limited partners consists of non-institutional investors. Discounts on secondaries deals are common, making it an attractive field for investors.

Despite the uncertainties caused by geopolitical factors, some firms recognize China’s potential as a profitable market. KKR & Co. recently restructured its Asia-Pacific private equity team, reflecting a commitment to the region. Similarly, Singapore-based AB Carval Investors LP, now part of AllianceBernstein, is actively pursuing opportunities in China’s private markets, particularly in nonperforming loans and debt from struggling property developers.

While fundraising for China-based funds has declined compared to previous years, Greater China-focused private equity assets under management reached a record $539 billion in 2022, according to Preqin data. However, Beijing’s recent crackdown on private enterprises and US efforts to restrict China’s access to certain technologies have added complexities to the investment landscape. The Biden administration is also considering measures to regulate and potentially limit US investments in China.

Nonetheless, the market size and the uneven access to capital in China present a compelling scene for private lenders and investors. BlackRock’s Chan emphasizes that the underserved borrowers on the ground present an opportunity to bridge the capital gap and deliver financial solutions.

Despite the challenges and uncertainties, the allure of China’s vast market and untapped potential continue to attract global fund managers who are seeking attractive returns and are willing to navigate the complexities to capitalize on the opportunities that lie within China’s private markets.

Gerald Foster
Financial Desk