Many firms are also looking at an alternative strategy, putting off sales by setting up so-called continuation funds to take over holdings for several more years, according to interviews with about a dozen of private equity investors and advisers. That's also proving challenging.
The lack of easy exits — affecting the likes of Blackstone-backed PAG and Carlyle Group — has shifted the world's second-largest economy from a vast frontier for buyouts into an uncertain landscape for long-term investing. Demand for Chinese assets cratered in the past few years, with record outflows even from public markets, as the economy struggles to regain traction and concerns mount over the political direction under Xi Jinping.
"We are in more challenging times, very similar to the way we experienced the global financial crisis," said Niklas Amundsson, partner at Monument Group, a global private placement agent. "China is completely out of favor and global investors are going to put China on hold for now."
Hong Kong-based PAG, which oversees $50 billion and focuses on Asia, has been trying for a few months to arrange a tender offer for about $1 billion of assets in prior funds, people familiar with the matter, including potential buyers and their advisers, have said, asking not to be named discussing confidential talks. A spokesperson declined to comment.
Some transactions may proceed thanks to the right conditions.
Carlyle Group and Trustar Capital have been seeking a partial exit for their investment in McDonald's operations in Hong Kong and China — a potential $4 billion deal that could involve setting up a new vehicle while attracting fresh capital, people with knowledge of the talks have said.
The key difference in that case is that the company's earnings are robust, making a partial private cash-out of the aging investment more feasible, even if a public offering isn't attractive in the current environment. A final agreement and terms have yet to be set.
Spokespeople for Carlyle and Trustar declined to comment.
It's a tough time all around for private equity.
After years of growth, some institutional clients, such as U.S. pension fund systems, have reached the limit of what they're willing to allocate to the sector, making it all the harder for small- and mid-sized money managers to raise fresh funding in an era of rising interest rates. Secondary buyers are finding it increasingly challenging to price risk. Some would be-clients also privately harbor reservations about the quality of some Asia PE firms and their assets, the people said.
Deals in China involving private equity firms are on track to slide for a second straight year, after plunging by 50% last year, according to data compiled by Bloomberg.
Some 151 funds targeting the greater-China region collectively raised $33.3 billion last year, the industry's smallest haul since 2013, according to Preqin. This year looks even bleaker.
