Several large U.S. private equity managers are hot on China, but getting money out of their investments is challenging.
That's why investment managers are predicting that private equity firms will increasingly return to issuing initial public offerings on China-based portfolio companies in the United States, an exit strategy popular a few years ago.
The number of China-based companies ready to go public in the U.S. is climbing. In the third quarter, 16 companies filed, compared with eight in the second quarter and 14 in the first three quarters of last year, according to an analysis for Pensions & Investments by Ernst & Young. Four that filed for IPOs in the third quarter were either private equity- or venture capital-backed companies, as were two of the eight that filed in the second quarter, according to Ernst & Young data.
Exits are key in China, where opportunity for private equity is tremendous but execution of the investment strategy can be tough, industry insiders say.
“China continues to be the market of great opportunity but difficult implementation,” Thomas K. Lynch, managing director in the New York office of Cliffwater LLC, said in an e-mailed response to questions.
At TPG Capital, spokesman Owen Blicksilver said: “As the Chinese economy continues to grow and Chinese companies become bigger and more internationalized, TPG does foresee more cross-boarder transactions taking place.
“Depending on the situation, TPG will help its portfolio companies expand overseas.”
TPG has two global funds that currently invest in China: TPG Partners VI LP and TPG Star LP, the TPG growth fund. The firm is currently raising two renminbi-denominated funds. Four earlier TPG funds focused on investing in emerging markets including Asia are all fully invested.