Private equity trends differ by continent, particularly when it comes to China. North American investors prefer to invest in China-focused funds through vehicles based elsewhere, while European investors prefer locally managed private equity funds.
Interest in china seems to be universal, but the mechanism varies. A study by alternative investment research firm Private Equity Intelligence, Ltd (PREQIN) suggests that North American private equity investors prefer to invest in China-focused funds based outside the country, while Europeans favor the use of funds located in China.
PREQIN analyzed data from 213 private equity investments by 47 funds that deal with opportunities in china. All funds had achieved a final close in the past 12 months. The funds considered were classified by their focus (e.g. China-specific, pan-Asian or global emerging market with a focus on China), as well as whether they are managed by firms inside or outside the greater China region.
The results, according to PREQIN, show that North American investors tend to choose funds not located in China. Only 36 percent opted to invest in China-oriented private equity funds based in China, compared to 64 percent choosing funds foreign to China but with a China focus. European investors, on the other hand, voted with their capital for China-based funds. More than half used funds located in China. PREQIN believes that Europeans hope to take advantage of the knowledge held by local managers.
In general, North American investors take a more cautious approach to investment in China than their European counterparts. Only 34 percent of the North Americans studied invested in China-specific funds, while the remainder chose emerging market or pan-Asian funds. Meanwhile, 44 percent of European capital went to funds targeting china from outside the country—compared to the 56 percent invested in funds based in China.
Investors around the world are attracted to China’s potential, but the implicit debate is centered on how to approach it. Europeans seem to believe that local expertise could enhance returns, and investors from North American prefer to keep China among a diversified portfolio of Asian opportunities, mostly from funds outside China.