Global investors in private equity and venture capital funds say they are rotating away from China as clients are reassessing risks because of the country’s rapidly changing environment.
Investors are paring their holdings in the once-booming economy, despite their conviction that long-term growth will continue, according to speakers from Partners Capital, Hamilton Lane and other firms, which collectively invest billions of dollars across the region, at the SuperReturn Asia conference in Singapore on Tuesday.
The world’s second-biggest economy is at a critical juncture as economic pillars from technology to real estate face earnings pressure, regulatory scrutiny and difficulties in going public overseas. President Xi Jinping’s campaign for “common prosperity,” a slogan embodying his push to balance wealth distribution, along with the country’s stringent covid restrictions have dented growth, prompting investors to seek opportunities elsewhere in the region, including India.
“We represent people and they define the kind of risk they want us to take,” said Emmanuel Pitsilis, managing director and co-head of Asia Pacific at Partners Capital, at the conference. Even though the firm believes in the rise of China, “there’s been a rotation and a desire from clients to diversify away from China,” he said.
The firm has switched from a program that’s heavily weighted toward China and venture-oriented programs to one that is much broader spread across different sectors and more geographically diverse, Pitsilis said.
But the caution on China isn’t resulting in a retreat from Asia. For sovereign wealth fund GIC Pte’s head of Asia, private equity, Kevin Looi, the rotation away from China has helped highlight the region’s other giant: India.
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“India has been a bit overshadowed by China historically but if you look at the mood in India it’s very buoyant,” he said. “There are good reasons for that, a supportive government, good investment policy, India’s also benefiting from the re-alignment of supply chains.”
The city-state of Singapore is also benefiting from the changes. The number of private equity firms in Singapore rose to 428 as of June from 336 at the start of 2021, according to Ravi Menon, managing director at the Monetary Authority of Singapore.
He has also seen an uptick in India. “Last year, growth in PE, VC investments in India outpaced most major economies, including China,” Menon said.
Mingchen Xia, managing director and co-head of Asia investments at Hamilton Lane, said another shift seen is that money put toward growth and venture capital deals are starting to go into buyout funds, where investors can better control how portfolio companies operate and eventually sell.
“You need to be very cautious on business models that are still loss-making,” he said. “They can generate very big growth but they’re still losing money” and may therefore struggle to raise future rounds of funding, he said.