Not that long ago, Blackstone Group (BX), TPG Capital, Goldman Sachs Group (GS), and other foreign buyout specialists had little trouble muscling out local rivals for deals in China. Today, Chinese firms dominate the private equity landscape. Investments by Chinese firms in the world’s second-biggest private equity market rose to $7.8 billion last year, overtaking for the first time the $7.4 billion that came in from U.S. and European funds, according to Asian Venture Capital Journal.
The shift coincides with China’s stepped-up efforts to develop homegrown private equity firms such as Beijing-based Hony Capital. Local firms enjoy privileges over foreign rivals when it comes to regulations and access to funding in yuan, also known as renminbi. “Renminbi fund managers have a huge advantage in terms of speed of execution as well as easier exit opportunities within China,” says Chris Meads, Hong Kong-based global head of investment at Pantheon, a London private equity company that has invested $2.7 billion in Asia. “Deal flow is being diverted to renminbi funds because it’s just easier for them.”
To counter this challenge, Goldman Sachs announced its first yuan fund in China in May, followed by Morgan Stanley (MS) a week later. In February, TPG Capital, the Fort Worth-based buyout firm, said it raised 4 billion yuan ($630 million) in a first round of fundraising for its renminbi fund, 90 percent coming from private investors in China. “For the global players aiming for a large market share in China, without renminbi funds, you probably feel more or less insufficient,” says Eric Zhang, a Beijing-based managing director at Carlyle Group, which runs a private equity fund with the Beijing municipal government.