Raising private-equity money has become more difficult in China and, by some definitions, $300 million is the new billion. If you can bring in the former sum, you're doing well, say PE fund-of-fund (FoF) managers. In 2007, numerous Chinese private equity start-ups were raising money on a non-verifiable track record and a powerpoint presentation, but now it's not so easy for them.

Investors are aware that a lot of people have been selling the dream in China and India. Now, limited partners (LPs) -- firms buying into private equity -- say they are becoming more discerning. Although there is an appetite for risk, many investors are differentiating more on track record than a sexy story. If they are going to be seduced, it will be by someone who has numbers on the board.

There was a dramatic increase in private equity net asset values (NAVs) in 2009 following a markdown in the second quarter of the year, with valuations falling more dramatically in Western markets than in Asia.

The big brand-name firms raised their funds before the Lehman Brothers collapse, and very few closed after that date. None is apparently likely to raise new funds this year. In the China-specific private-equity market, you can count the number of current capital raisings in the billion-dollar ballpark on the fingers of one hand. They include CDH, Citic Private Equity and New Horizon, all of which are closed or due to close in the next few weeks.

Dispersion between top- and bottom-quartile performance may be greater in China than other places, because there are a greater number of inexperienced managers, according to PE FoF firms. Such inexperience may be even more prevalent among renminbi-denominated fund managers, as there have been dozens of renminbi fund launches in the last year compared to dollar launches.

"We are amazed by the number of GPs (general partners) starting up in China now," says Doug Coulter, head of private equity Asia Pacific for LGT Capital Partners. It is difficult for most GPs to raise capital and they need to have an angle. That won't get them the money necessarily, but it may get them a second meeting with investors. Key issues include: do they have an edge with a particular group in China, maybe involving deal sourcing, access or an ability to get deals closed? Have the principals worked together before and how stable has the team been? Do they have a track record?

But Coulter adds a caveat. "We think it is important to be well connected in China politically, but we wouldn't want to invest in a firm whose main edge was purely high-level political connections. We are careful when political connections are presented as an investment rationale."

Among other issues, portfolio managers are cautious about private-equity managers putting money into side deals with investment firms without disclosing it. There is also a preference for backing entrepreneurs who only have one business and focus on that, rather than one who owns, say, a bank, a transport company and a pharmaceuticals group and may get his priorities muddled.