On the back of slowing economic growth, tighter liquidity and the government’s crackdown on black-market funding, Chinese investors are boosting overseas exposure via private equity funds, says Vivian Lam, partner at law firm Paul Hastings.
“We have been doing a lot of fund formations for funds that you can’t really call Chinese because they don’t just take Chinese money," she said. "They take money from Chinese insurers, corporations and high-net-worth individuals."
“And they attract a lot of PE investments from global investors, global names and sovereign wealth funds. The money is being invested globally,” added Lam (pictured).
Alongside increasing Chinese demand for diversification offshore, foreign demand for mainland real estate is growing, said David Blumenfeld, also a partner at Paul Hastings.
He recently advised clients on the first foreign-mandated onshore renminbi-denominated real estate private equity fund.
As economic growth decelerates, Chinese authorities have become more receptive to foreign investment, Blumenfeld said.
But as mainland GDP growth has come down from double digits, foreign investors also have become more mindful of quality.
“It’s easier to propose to your fund, or your investment committee, an investment in the central business district of a tier-one city, or if you are going outside a tier-one city somewhere like Hangzhou, one of China’s more affluent places," said Blumenfeld. "But as you start to get to second-tier or third-tier cities, our clients turn a lot more sceptical."
On the other hand, he said his clients see opportunities emerging as they expect diminishing liquidity and downward price pressure to prompt sellers to become more realistic about pricing.
“Funds we act for outside China that want to invest are looking for distressed assets,” said Lam. “We are talking to a number of funds. They think some of these distressed opportunities should be coming up soon.”
The hottest investment segment in China is logistics, said Blumenfeld.
Inbound and outbound investments on the mainland are being facilitated by the recent simplification of regulations and the relaxation of restrictions on the renminbi, said Lam.
She pointed to the government’s planned revamp of its qualified domestic institutional investor programme as evidence of the authorities’ willingness to allow the currency to flow offshore.
Last month, the National Development and Reform Commission eased restrictions on Chinese companies investing abroad. Previously, investments exceeding $300 million required approval. That ceiling was lifted to $1 billion.