China's Local Private Equity Market Gets a New Boost

Renminbi (RMB) funds — private equity funds raised in China's local currency — have been in fashion of late. In August, U.S.-based private equity firm Blackstone Group and a number of its Western peers announced plans to set up their own RMB funds. Such funds have been underutilized but are now receiving renewed attention by foreign firms that are finding China’s private equity market more attractive than ever. “Right now, the A-share market [shares denominated in renminbi] is so good, and IPOs in the growth market offer a high price-to-earnings ratio,” says Joe Tian of DT Capital, a China-focused private equity firm in Shanghai.

Fueling this interest is ChiNext, China’s first Nasdaq-style stock exchange, which was formally launched in Shenzhen on October 23 to the enthusiasm of fund managers and private equity firms looking for an alternate avenue to exit investments.

Meanwhile, a host of factors, including China’s buoyant economy and expectations that the yuan will strengthen against the dollar, are driving investors to explore onshore options in greater numbers. Global private equity players hope that RMB funds will offer a new way to benefit from the growth of Chinese companies at a time when changing regulations are choking the old channel of foreign currency-based investing. Meanwhile, RMB funds allow them to tap China’s mounting pile of cash, which is poised to grow even more.

To read more about the rise of RMB funds in China, see the current issue of China Knowledge at Wharton.